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 for a supermodel
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

Answer 1

Here’s my portfolio with explanations, reasons diversification matters, and one risk it can’t remove.

1) Investment breakdown (total = $10,000)
- Stocks: $5,000 (50%)
- Bonds: $3,000 (30%)
- Savings: $2,000 (20%)
(Checks: $5,000 + $3,000 + $2,000 = $10,000. No category > $6,000 so the 60% rule is met.)

2) Why I allocated the money this way
- Stocks ($5,000 / 50%): I put the largest share here because stocks have the highest long-term growth potential. This allocation pursues capital appreciation while staying safely under the 60% cap.
- Bonds ($3,000 / 30%): Bonds add income and help stabilize the portfolio when stocks are volatile. They reduce overall volatility and provide predictable interest payments.
- Savings ($2,000 / 20%): This is a very low-risk holding (e.g., high-yield savings or a money market). It preserves capital and provides liquidity for emergencies or short-term needs without market risk.

3) Three reasons diversification is important
- Reduces the impact of a single investment’s failure: If one stock or sector performs poorly, other holdings can offset those losses.
- Lowers overall volatility: Combining asset types (stocks, bonds, cash) smooths returns over time, so the portfolio is less likely to swing wildly up or down.
- Provides exposure to different opportunities and cycles: Different assets perform better under different economic conditions (e.g., bonds may do better in downturns, stocks in expansions), so diversification helps capture gains from multiple sources.

4) One risk diversification cannot eliminate
- Systematic (market) risk: This is the risk that affects the entire market or economy—like a recession, pandemic, or major financial crisis. Even a well-diversified portfolio can lose value in a broad market downturn because all assets can be impacted simultaneously. Diversification lowers but does not remove this kind of risk.

5) Neat summary / final note
- Allocation: Stocks $5,000 | Bonds $3,000 | Savings $2,000 = $10,000
- All categories included and within the 60% rule.
- Allocation balances growth (stocks), stability/income (bonds), and safety/liquidity (savings).

If you want, I can adjust the mix for a more conservative or aggressive profile, or suggest specific fund types (index funds, bond funds, high-yield savings) to implement this plan.