Here is the table again showing the long-term returns and risks of the major asset classes from 1926 - 2018.

Asset	Geometric Mean (%)	Standard Deviation %
Large-Cap Stocks	10.0%	19.8%
Small-Cap Stocks	11.8%	31.6%
Long-term Corporate Bonds	5.9%	8.4%
Long-term Government Bonds	5.5%	9.8%
Intermediate-term Government Bonds	5.1%	5.6%
U.S. Treasury Bills	3.3%	3.1%
Inflation	2.9%	4.0%

Source: Duff and Phelp, 2019 SBBI Yearbook Stocks, Bonds, Bills, and Inflation, Roger G. Ibbotson.

Based on the table above, please share some of your thoughts and insights on how a prudent investor should invest a portfolio for a long time frame (20 years+).

1. How would you allocate among the asset classes listed above? Please use full percentage points.

2. Based on your chosen allocation, what would your expected average annual return be over the long-term?

Here is an example of how to do that calculation:

In this example, I chose a portfolio of 50% Large-cap stocks, 30% Small-cap stocks and 20% Intermediate Gov bonds. You would basically multiply the percentage allocation by the expected return for each asset class and then sum them up for your expected return.

Asset Class	Allocation	Exp Return	Alloc X Exp Rtn
Large Cap Stocks	0.5	10.0%	0.05
Small Cap Stocks	0.3	11.8%	0.0354
Intermediate Term Gov Bds	0.2	5.1%	0.0102
	1		9.6%

So the long-term expected average annual returnfor this example portfolio would be 9.6%.

3. Would you use this same allocation if your time horizon was only 5 years? Why or why not?