Question

Identify and briefly discuss 2 key issues raised in "Why not 100 percent equities?" by Clifford Asness. (8 pts)

Answer 1

We'll point two key issues of what happens when one invests 100‬% Pure Equity in his portfolio as below:

• Lack of Balance in the Portfolio leading to the imbalance in Portfolio Allocation: Markets are not immune to the bubbles, economic slowdown and market crashes. Bonds offer more security when compared with the risky equities. There is no hundred percent rule that a company can grow constantly or can sustain another 33 years long. Endowments need longer time investment horizon and balanced portfolio could be more safer than the 100% Equities and history of stock market holds as an evidence to prove this.
• Ignores benefits offered by the Diversification: Diversification offers one to skip the longevity risk. 60‬/40‬ balance fund risk could be different from all equity portfolio growth performance and risk. Significant losses occurred in the market crashes affect an all equity fund more than a balanced fund.