HC/FC Portfolio Allocation

[tribeca_regent]

Looking at PWM (HC/FC) Curriculum p. 424. Q2-3.
Here’s what the question is about:

• G advisor recommending pf alloc.
• His mkt return exp is : AAA-gov bond : 5% ret/ zero-vol. and Stocks : 9% ret/ 20% vol.
• There are five pf alloc options (stocks/bonds) : 100/0, 80/20, 65/35, 20/80,0/100.

Here’s the allocation this G puts up (all clients are 35 yo).

• 65/35 : physician with 200K annual income and 250K financial wealth looking at 750K inherit in 2mos.
• 80/20 : equity trader with 200K annual income (0.90 corr with S&P500).
• 65/35 : stock broker with 175K annual income that is highly correlated to risky asset returns. Moderate risk tol.

Here are a few of my questions

1. How are the trader and broker different? Both have equity-like HC.
2. How do the broker and physician have the same alloc?
3. Assuming a ‘normal’ alloc is 60/40, would a 65-35 be moderate risk-taking/ 80-20 little more ambitious/ and 100-0 complete G?
4. Is the advisor’s market return relevant at all?