CFA CFA Level 3 Asset Allocation Calculation – Take Leverage Into Consideration?

Port Mgmt

Asset Allocation Calculation – Take Leverage Into Consideration?

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      Hi,

      Let’s say I have $100K budget. I used $50K to invest in real estate by purchasing $450K piece of property and took a mortgage of $400K. I then used the remaining $50K to purchase stock cash.

      What is my current portfolio allocation now? Is it 50% real estate 50% stock ($50K property equity and $50K stock) or is it 90% real estate 10% stock ($450K property value and $50K stock)?

      mikey voted up
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      Your asset allocation should be 50% real estate 50% equity. By mortgaging you’ve used leverage to increase the risk-return of the real estate portion.

      So your real estate risk is now higher than say if you bought a $50K equivalent property, but it’s still 50%.

      mikey voted up
    • Avatar of dominykassdominykass
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      Ok, that’s complicated. I would not do something like that because the debt is too big. I prefer not to make any investments from the money I don’t own.

    • Avatar of dominykassdominykass
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      I think it’s much safer and more reliable not to depend on a bank or any other financial institution. I also regularly cooperate with experienced brokers from Mortgage Broker Scarborough to ensure I am going in the right direction. I also do have some experience, but they know the market better than I and I prefer to pay a little money and be sure I make the right choice rather than lose peace of mind for a long time.

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