quantwise 1.2.0 → 1.2.2

package/.claude/skills/portfolio-manager/references/target-allocations.md

@@ -0,0 +1,558 @@
+# Target Allocation Models
+
+This document provides model portfolio allocations for different investor risk profiles, serving as benchmarks for portfolio analysis and rebalancing.
+
+## Overview
+
+Target allocations provide a framework for:
+1. Assessing if current portfolio matches investor risk tolerance
+2. Identifying allocation gaps and concentration risks
+3. Guiding rebalancing decisions
+4. Setting position sizing guidelines
+
+**Important:** These are templates, not prescriptions. Actual allocations should be customized based on individual circumstances, goals, time horizon, and constraints.
+
+## Investor Risk Profile Classification
+
+### Factors Determining Risk Profile
+
+| Factor | Conservative | Moderate | Growth | Aggressive |
+|--------|-------------|----------|--------|------------|
+| **Age** | 60+ | 45-60 | 30-45 | <30 |
+| **Time Horizon** | 0-5 years | 5-15 years | 15-25 years | 25+ years |
+| **Income Stability** | Fixed income (retired) | Stable salary | Growing career | Variable/high |
+| **Net Worth** | Low to moderate | Moderate | High | Very high |
+| **Loss Tolerance** | Cannot afford >10% loss | Can handle 15-25% loss | Can handle 25-35% loss | Can handle >40% loss |
+| **Investment Goal** | Preserve capital, income | Balanced growth & income | Long-term growth | Maximum growth |
+| **Market Experience** | Limited | Moderate | Experienced | Very experienced |
+
+**Self-Assessment:**
+Rate yourself on each factor, assign the corresponding risk profile, and determine your overall profile based on the majority classification.
+
+## Conservative Portfolio (Capital Preservation)
+
+### Profile
+- **Investor:** Near or in retirement, low risk tolerance, need for income and capital preservation
+- **Time Horizon:** 0-5 years
+- **Max Acceptable Drawdown:** -10 to -15%
+- **Expected Annual Return:** 4-6%
+- **Expected Volatility:** 6-10%
+
+### Asset Allocation
+
+```
+Total Portfolio Allocation:
+├── Equities: 30%
+│   ├── US Stocks: 20%
+│   ├── International Developed: 7%
+│   └── Emerging Markets: 3%
+├── Fixed Income: 55%
+│   ├── Investment Grade Bonds: 30%
+│   ├── Government Bonds: 20%
+│   └── High Yield Bonds: 5%
+├── Cash & Equivalents: 10%
+└── Alternatives (Optional): 5%
+    ├── REITs: 3%
+    └── Gold: 2%
+```
+
+### Equity Allocation (30% of total portfolio)
+
+**US Stocks (20% of total, 67% of equity):**
+
+| Sector | % of Total Portfolio | % of US Equity | Characteristics |
+|--------|---------------------|----------------|-----------------|
+| **Utilities** | 3.5% | 17.5% | High dividends, stable cash flows |
+| **Consumer Staples** | 3.0% | 15.0% | Defensive, recession-resistant |
+| **Healthcare** | 3.5% | 17.5% | Defensive with growth potential |
+| **Financials** | 2.5% | 12.5% | Dividend income, moderate growth |
+| **Technology** | 2.5% | 12.5% | Quality large-caps only (AAPL, MSFT) |
+| **Communication Services** | 2.0% | 10.0% | Stable cash flows (T, VZ) |
+| **Consumer Discretionary** | 1.5% | 7.5% | Underweight cyclicals |
+| **Industrials** | 1.0% | 5.0% | Minimal exposure |
+| **Real Estate** | 0.5% | 2.5% | Via separate REIT allocation |
+| **Energy** | 0% | 0% | Avoid volatility |
+| **Materials** | 0% | 0% | Avoid volatility |
+
+**International & Emerging (10% of total, 33% of equity):**
+- International Developed: 7% (Europe, Japan, UK - stable, dividend-focused)
+- Emerging Markets: 3% (minimal exposure, diversification only)
+
+**Position Sizing:**
+- Maximum single position: 5% of total portfolio
+- Typical position: 2-3%
+- Number of positions: 12-20 stocks OR 4-6 diversified ETFs
+
+**Preferred Holdings:**
+- Large-cap dividend aristocrats (25+ years of dividend growth)
+- Defensive sectors with recession resistance
+- Low beta stocks (β < 0.8)
+- Established companies with strong balance sheets
+
+**Example Portfolio (ETF-based):**
+- 10% VZ (Verizon) - Telecom, 6% yield
+- 10% JNJ (Johnson & Johnson) - Healthcare, dividend aristocrat
+- 10% PG (Procter & Gamble) - Consumer staples, stable
+- 5% SO (Southern Company) - Utility, high yield
+- 5% KO (Coca-Cola) - Consumer staples, dividend
+- 5% PFE (Pfizer) - Healthcare, value
+- (Or equivalent via dividend-focused ETFs: VYM, SCHD, DVY)
+
+### Fixed Income Allocation (55% of total portfolio)
+
+| Bond Type | % of Total Portfolio | Purpose |
+|-----------|---------------------|---------|
+| **Investment Grade Corporate** | 30% | Income, moderate risk |
+| **US Treasury Bonds** | 15% | Safety, low risk |
+| **TIPS (Inflation-Protected)** | 5% | Inflation hedge |
+| **High Yield (Junk Bonds)** | 5% | Higher income, higher risk |
+
+**Duration:** Short to intermediate (3-7 years) to reduce interest rate risk
+
+**Example Holdings:**
+- AGG (Core Bond ETF)
+- BND (Total Bond Market)
+- LQD (Investment Grade Corporate)
+- TIP (TIPS)
+- HYG (High Yield - small allocation)
+
+### Cash & Equivalents (10%)
+
+**Purpose:**
+- Emergency liquidity
+- Opportunistic buying on dips
+- Reduce overall volatility
+
+**Holdings:**
+- Money market funds
+- Short-term Treasury bills
+- High-yield savings accounts
+
+---
+
+## Moderate Portfolio (Balanced Growth & Income)
+
+### Profile
+- **Investor:** Mid-career, balanced objectives, moderate risk tolerance
+- **Time Horizon:** 5-15 years
+- **Max Acceptable Drawdown:** -15 to -25%
+- **Expected Annual Return:** 6-8%
+- **Expected Volatility:** 10-14%
+
+### Asset Allocation
+
+```
+Total Portfolio Allocation:
+├── Equities: 60%
+│   ├── US Stocks: 42%
+│   ├── International Developed: 12%
+│   └── Emerging Markets: 6%
+├── Fixed Income: 32%
+│   ├── Investment Grade Bonds: 20%
+│   ├── Government Bonds: 7%
+│   └── High Yield Bonds: 5%
+├── Cash & Equivalents: 5%
+└── Alternatives (Optional): 3%
+    ├── REITs: 2%
+    └── Commodities/Gold: 1%
+```
+
+### Equity Allocation (60% of total portfolio)
+
+**US Stocks (42% of total, 70% of equity):**
+
+| Sector | % of Total Portfolio | % of US Equity | Benchmark (S&P 500) |
+|--------|---------------------|----------------|---------------------|
+| **Technology** | 11.0% | 26% | 28% |
+| **Healthcare** | 7.0% | 17% | 13% |
+| **Financials** | 6.0% | 14% | 13% |
+| **Consumer Discretionary** | 5.5% | 13% | 11% |
+| **Industrials** | 4.0% | 10% | 9% |
+| **Consumer Staples** | 3.5% | 8% | 7% |
+| **Communication Services** | 2.5% | 6% | 9% |
+| **Energy** | 1.0% | 2% | 4% |
+| **Utilities** | 1.0% | 2% | 3% |
+| **Real Estate** | 0.5% | 1% | 3% |
+| **Materials** | 0.5% | 1% | 3% |
+
+**Sector Strategy:**
+- Slight overweight in Technology and Healthcare (growth + quality)
+- Balanced exposure to Financials and Consumer sectors
+- Underweight Energy and Materials (volatility)
+- Defensive sectors (Utilities, Staples) lower than conservative portfolio
+
+**International & Emerging (18% of total, 30% of equity):**
+- International Developed: 12% (Europe, Japan, UK, Canada)
+- Emerging Markets: 6% (China, India, Brazil - growth exposure)
+
+**Position Sizing:**
+- Maximum single position: 8% of total portfolio
+- High conviction positions: 6-8%
+- Medium conviction: 4-6%
+- Low conviction: 2-3%
+- Number of positions: 15-25 stocks OR 6-10 ETFs
+
+**Market Cap Distribution:**
+- Large-cap (>$10B): 70% of US equity
+- Mid-cap ($2-10B): 20%
+- Small-cap (<$2B): 10%
+
+**Example Portfolio (Individual Stocks):**
+- 8% MSFT - Technology, quality growth
+- 7% AAPL - Technology, ecosystem
+- 6% GOOGL - Technology, advertising
+- 6% JNJ - Healthcare, defensive
+- 5% JPM - Financials, dividend
+- 5% UNH - Healthcare, growth
+- 4% V - Financials, payments
+- 4% HD - Consumer Discretionary, housing
+- 4% DIS - Communication, entertainment
+- 3% BA - Industrials, aerospace
+- (Additional 15% in 8-10 smaller positions)
+- 18% International (VEA, VWO, or individual stocks)
+
+### Fixed Income Allocation (32% of total portfolio)
+
+| Bond Type | % of Total Portfolio | Purpose |
+|-----------|---------------------|---------|
+| **Investment Grade Corporate** | 20% | Core income, moderate risk |
+| **US Treasury Bonds** | 5% | Safety ballast |
+| **TIPS** | 2% | Inflation hedge |
+| **High Yield Bonds** | 5% | Enhanced income |
+
+**Duration:** Intermediate (5-10 years)
+
+---
+
+## Growth Portfolio (Long-Term Capital Appreciation)
+
+### Profile
+- **Investor:** Younger investor, long time horizon, growth-focused
+- **Time Horizon:** 15-25 years
+- **Max Acceptable Drawdown:** -25 to -35%
+- **Expected Annual Return:** 8-10%
+- **Expected Volatility:** 14-18%
+
+### Asset Allocation
+
+```
+Total Portfolio Allocation:
+├── Equities: 80%
+│   ├── US Stocks: 52%
+│   ├── International Developed: 18%
+│   └── Emerging Markets: 10%
+├── Fixed Income: 15%
+│   ├── Investment Grade Bonds: 8%
+│   └── High Yield Bonds: 7%
+├── Cash & Equivalents: 3%
+└── Alternatives: 2%
+    └── REITs or Commodities: 2%
+```
+
+### Equity Allocation (80% of total portfolio)
+
+**US Stocks (52% of total, 65% of equity):**
+
+| Sector | % of Total Portfolio | % of US Equity | Notes |
+|--------|---------------------|----------------|-------|
+| **Technology** | 16.0% | 31% | Growth focus, secular trends |
+| **Healthcare** | 8.0% | 15% | Innovation, demographics |
+| **Consumer Discretionary** | 7.5% | 14% | Economic growth exposure |
+| **Communication Services** | 6.0% | 12% | Digital transformation |
+| **Financials** | 5.5% | 11% | Economic expansion |
+| **Industrials** | 5.0% | 10% | Capital spending cycles |
+| **Consumer Staples** | 2.0% | 4% | Underweight defensive |
+| **Energy** | 1.0% | 2% | Minimal exposure |
+| **Materials** | 0.5% | 1% | Minimal exposure |
+| **Utilities** | 0.5% | 1% | Minimal exposure |
+| **Real Estate** | 0% | 0% | Separate REIT allocation |
+
+**Sector Strategy:**
+- Heavy overweight Technology (innovation, secular growth)
+- Overweight Healthcare (demographics, innovation)
+- Growth and cyclical sectors emphasized
+- Minimal defensive sectors (don't need stability)
+
+**International & Emerging (28% of total, 35% of equity):**
+- International Developed: 18% (quality international growth)
+- Emerging Markets: 10% (higher growth potential)
+
+**Position Sizing:**
+- Maximum single position: 10% of total portfolio
+- High conviction positions: 8-10%
+- Medium conviction: 5-7%
+- Low conviction: 2-4%
+- Number of positions: 15-30 stocks
+
+**Market Cap Distribution:**
+- Large-cap: 60% of US equity
+- Mid-cap: 25%
+- Small-cap: 15% (growth potential)
+
+**Growth vs Value Tilt:** Balanced to slight growth tilt (not extreme)
+
+**Example Portfolio:**
+- 10% NVDA - Technology, AI leadership
+- 9% MSFT - Technology, cloud + AI
+- 8% AAPL - Technology, ecosystem
+- 7% GOOGL - Technology, AI + advertising
+- 6% AMZN - Consumer Discretionary, AWS
+- 6% META - Communication, digital advertising
+- 5% TSLA - Consumer Discretionary, EV + energy
+- 5% UNH - Healthcare, managed care
+- 4% V - Financials, payments
+- 4% MA - Financials, payments
+- (Remaining 36% in 15-20 smaller positions + international)
+
+### Fixed Income Allocation (15% of total portfolio)
+
+| Bond Type | % of Total Portfolio | Purpose |
+|-----------|---------------------|---------|
+| **Investment Grade Corporate** | 8% | Moderate income, volatility dampening |
+| **High Yield Bonds** | 7% | Enhanced returns, equity-like exposure |
+
+**Duration:** Intermediate to long (7-15 years) - can handle rate risk
+
+---
+
+## Aggressive Portfolio (Maximum Growth)
+
+### Profile
+- **Investor:** Young, high income, very high risk tolerance, long horizon
+- **Time Horizon:** 20+ years
+- **Max Acceptable Drawdown:** -35 to -50%
+- **Expected Annual Return:** 9-12%
+- **Expected Volatility:** 18-22%
+
+### Asset Allocation
+
+```
+Total Portfolio Allocation:
+├── Equities: 95%
+│   ├── US Stocks: 57%
+│   ├── International Developed: 23%
+│   └── Emerging Markets: 15%
+├── Fixed Income: 0-5%
+└── Cash & Equivalents: 0-5%
+```
+
+### Equity Allocation (95% of total portfolio)
+
+**US Stocks (57% of total, 60% of equity):**
+
+| Sector | % of Total Portfolio | % of US Equity | Strategy |
+|--------|---------------------|----------------|----------|
+| **Technology** | 20.0% | 35% | Maximum exposure to innovation |
+| **Healthcare** | 9.0% | 16% | Biotech, medical devices, innovation |
+| **Consumer Discretionary** | 9.0% | 16% | E-commerce, luxury, travel |
+| **Communication Services** | 6.0% | 11% | Digital platforms, streaming |
+| **Financials** | 6.0% | 11% | Fintechs, growth-oriented |
+| **Industrials** | 4.0% | 7% | Aerospace, automation |
+| **Consumer Staples** | 1.0% | 2% | Minimal |
+| **Energy** | 1.0% | 2% | Renewables focus |
+| **Materials** | 0.5% | 1% | Minimal |
+| **Utilities** | 0.5% | 1% | Minimal |
+
+**Sector Strategy:**
+- Extreme overweight Technology (35% vs 28% benchmark)
+- Growth sectors dominate (80%+ of portfolio)
+- Minimal defensive exposure
+- Willing to accept high volatility
+
+**International & Emerging (38% of total, 40% of equity):**
+- International Developed: 23% (European tech, Asian growth)
+- Emerging Markets: 15% (China tech, India growth, LatAm)
+
+**Position Sizing:**
+- Maximum single position: 12% of total portfolio
+- High conviction positions: 10-12%
+- Medium conviction: 6-9%
+- Low conviction: 3-5%
+- Number of positions: 12-25 stocks (concentrated)
+
+**Market Cap Distribution:**
+- Large-cap: 55%
+- Mid-cap: 30%
+- Small-cap: 15% (higher growth potential, higher risk)
+
+**Growth vs Value:** Strong growth tilt
+
+**Style Characteristics:**
+- High P/E ratios acceptable (growth premium)
+- Focus on revenue growth over profitability (for some positions)
+- Secular themes: AI, cloud, EVs, fintech, biotech
+- May include speculative positions (5-10% total)
+
+**Example Portfolio:**
+- 12% NVDA - Technology, AI chips
+- 10% TSLA - Consumer Discretionary, EVs + autonomy
+- 9% MSFT - Technology, cloud + AI
+- 8% GOOGL - Technology, AI + advertising
+- 8% META - Communication, VR/AI
+- 7% AMZN - Consumer Discretionary, AWS
+- 6% AAPL - Technology, ecosystem
+- 5% SHOP - Technology, e-commerce platform
+- 5% SQ - Fintech, payments
+- 4% CRSP - Healthcare, gene editing
+- 4% ENPH - Energy, solar
+- (Remaining 22% in smaller growth positions + international exposure)
+
+### Fixed Income Allocation (0-5% of total portfolio)
+
+**Minimal to none:**
+- 0-5% investment grade or cash for liquidity only
+- No need for volatility dampening given time horizon
+- 100% equity acceptable for this profile
+
+---
+
+## Specialized Allocation Considerations
+
+### Dividend Income Portfolio
+
+**Objective:** Maximize current income while preserving capital
+
+**Allocation:**
+- Equities: 60% (dividend-focused)
+  - High-yield stocks (4-7% yields): 40%
+  - Dividend growth stocks: 20%
+- Fixed Income: 30% (income-focused)
+  - Investment grade corporate: 15%
+  - High yield bonds: 10%
+  - Preferred stocks: 5%
+- REITs: 10% (high dividends, inflation hedge)
+
+**Target Yield:** 4-6% on total portfolio
+
+### Tax-Efficient Portfolio (Taxable Account)
+
+**Considerations:**
+- Minimize turnover (reduce capital gains)
+- Favor qualified dividends and long-term gains
+- Tax-loss harvesting opportunities
+- Municipal bonds (if high tax bracket)
+
+**Allocation Adjustments:**
+- Growth stocks (low/no dividends): Higher weight
+- Municipal bonds: Replace corporate bonds
+- Index funds: Higher weight vs active funds
+- International: Lower weight (foreign tax complexity)
+
+### Retirement Portfolio (Post-Retirement)
+
+**Objective:** Generate income, preserve capital, manage longevity risk
+
+**Allocation (varies by age):**
+- Age 65: 40/60 stocks/bonds
+- Age 75: 30/70 stocks/bonds
+- Age 85: 20/80 stocks/bonds
+
+**Income Strategy:**
+- 4% withdrawal rate (sustainable)
+- Bucket approach:
+  - Bucket 1 (0-2 years expenses): Cash
+  - Bucket 2 (3-7 years): Bonds
+  - Bucket 3 (8+ years): Stocks
+
+---
+
+## Position Sizing Guidelines by Risk Profile
+
+| Risk Profile | Max Single Position | Typical Position | Min # of Stocks | Max # of Stocks |
+|--------------|--------------------|--------------------|----------------|----------------|
+| **Conservative** | 5% | 2-3% | 12 | 20 |
+| **Moderate** | 8% | 4-6% | 15 | 25 |
+| **Growth** | 10% | 5-7% | 15 | 30 |
+| **Aggressive** | 12% | 6-9% | 12 | 25 |
+
+**Single Sector Maximums:**
+
+| Risk Profile | Max Single Sector |
+|--------------|------------------|
+| **Conservative** | 25% |
+| **Moderate** | 30% |
+| **Growth** | 35% |
+| **Aggressive** | 40% |
+
+---
+
+## Rebalancing Triggers by Risk Profile
+
+| Risk Profile | Rebalancing Frequency | Asset Class Drift Trigger | Position Drift Trigger |
+|--------------|----------------------|--------------------------|------------------------|
+| **Conservative** | Quarterly | >3% | >2% |
+| **Moderate** | Quarterly | >5% | >3% |
+| **Growth** | Semi-Annually | >7% | >4% |
+| **Aggressive** | Annually | >10% | >5% |
+
+---
+
+## Lifecycle Allocation (Age-Based)
+
+**Traditional Rule of Thumb:** "120 minus your age" in stocks
+
+| Age | Stock % | Bond % | Formula |
+|-----|---------|--------|---------|
+| 25 | 95% | 5% | 120 - 25 |
+| 35 | 85% | 15% | 120 - 35 |
+| 45 | 75% | 25% | 120 - 45 |
+| 55 | 65% | 35% | 120 - 55 |
+| 65 | 55% | 45% | 120 - 65 |
+| 75 | 45% | 55% | 120 - 75 |
+
+**Modern Adjustment:** "130 minus your age" (accounts for longer lifespans, low interest rates)
+
+---
+
+## Using Target Allocations in Portfolio Analysis
+
+### 1. Identify Current Allocation
+Calculate actual portfolio percentages across:
+- Asset classes (stocks/bonds/cash)
+- Sectors (within stocks)
+- Geographic regions
+- Market caps
+
+### 2. Compare to Target Model
+Select appropriate model based on:
+- Investor risk tolerance assessment
+- Time horizon
+- Financial situation
+- Goals
+
+### 3. Calculate Deviations
+```
+Deviation = Current % - Target %
+
+Example:
+Target (Moderate): 60% stocks
+Current: 68% stocks
+Deviation: +8% (overweight stocks)
+```
+
+### 4. Generate Rebalancing Plan
+- Trim overweight positions/sectors
+- Add to underweight positions/sectors
+- Prioritize based on magnitude of deviation
+
+### 5. Adjust for Individual Circumstances
+Templates are starting points, not rigid rules:
+- Tax situation may favor certain holdings
+- Unique expertise may justify sector overweight
+- Employer stock may create concentration
+- Real estate holdings (home) affect allocation
+
+---
+
+## Summary
+
+**Key Takeaways:**
+
+1. **Target allocations are guidelines,** not mandates - customize to individual circumstances
+2. **Risk profile drives allocation** - match stocks/bonds to risk tolerance and time horizon
+3. **Sector allocation matters** - within equity allocation, sector mix drives risk and return
+4. **Position sizing discipline** - enforce maximum position sizes to control concentration
+5. **Rebalance systematically** - maintain target allocation over time, don't drift unintentionally
+6. **Lifecycle matters** - adjust allocation as you age and circumstances change
+
+**Remember:** The best allocation is one you can stick with through market cycles. Don't choose an aggressive allocation if you'll panic-sell in a 30% drawdown. Match allocation to your true risk tolerance, not your aspirational risk tolerance.