Question

Directions: you will receive $10,000 in play money to create your own investment portfolio. A portfolio is simply a mix of different investments you choose to put your money into.

Your goal is to build a diversified portfolio, which means you will spread your money across different types of investments, so you don’t rely on just one option.

You must divide your $10,000 among these three categories:

1. Stocks - Higher risk and higher potential reward. Good for growth.
2. Bonds - Lower risk and steady income. Helps stabilize your portfolio.
3. Savings - Very low risk. Safe but low return.
Important Rule:
You cannot put more than 60% of your total money into any one category.

That means you cannot put more than $6,000 into any single group.
Your Job:
Decide how much money goes into stocks, bonds, and savings.
Make sure the total adds up to $10,000.
Keep your choices within the 60% rule.
Be ready to explain why you invested your money this way.
1. Investment Breakdown (10 points)
10 points: All $10,000 correctly divided, follows 60% rule, includes all 3 categories
7 points: Mostly correct, follows rule with minor errors
4 points: Several mistakes or missing one category
0 points: Incorrect or missing
2. Explanation of Choices (10 points)
10 points: Clear explanation of why money was invested in each category
7 points: Some explanation but missing details
4 points: Minimal or unclear explanation
0 points: No explanation
3. Three Reasons Diversification Is Important (10 points)
10 points: Three accurate reasons
7 points: Two correct reasons
4 points: One correct reason
0 points: None correct
4. One Risk Diversification Cannot Eliminate (5 points)
5 points: Correct risk with simple explanation
3 points: Correct risk but unclear
0 points: Incorrect or missing
5. Neatness & Completion (5 points)
5 points: Neat, organized, all parts complete
3 points: Mostly neat, one part incomplete
0 points: Messy or multiple parts missing for a model

Answer 1

Investment breakdown (10,000 total)
- Stocks: $5,500 (55%)
- Bonds: $3,000 (30%)
- Savings: $1,500 (15%)
Total = $10,000. No category exceeds $6,000 (60%).

Why I chose each allocation
- Stocks ($5,500 / 55%): I put the largest share in stocks to pursue long‑term growth. Stocks historically offer higher returns over time, which helps the portfolio grow faster than bonds or savings.
- Bonds ($3,000 / 30%): Bonds reduce overall portfolio volatility and provide steady income (interest). This helps stabilize the portfolio when stock prices fall.
- Savings ($1,500 / 15%): Savings (cash or a high‑yield savings account) provides liquidity for emergencies or short‑term needs and preserves capital with very low risk.

Three reasons diversification is important
1. Reduces unsystematic risk: Owning different companies and asset types lowers the chance that a single company’s failure will ruin the portfolio.
2. Smooths returns: Different assets often move differently in the market, which can reduce overall volatility and make returns more predictable.
3. Preserves access to cash and income: A mix including bonds and savings provides income and liquidity when stocks are down, avoiding forced selling at bad times.

One risk diversification cannot eliminate
- Market (systematic) risk: Broad economic events—recessions, major geopolitical crises, big interest‑rate shifts—tend to move most assets together. Diversification can’t fully protect against these economy‑wide losses.

Neatness & completion
- All three categories included, totals correct, explanation provided, three diversification reasons given, and one risk identified.