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Question
An investor needs a 7% annual real return to meet their retirement goal. What does this imply about their asset allocation?
1
The investor should focus entirely on individual stock selection rather than asset allocation.
2
They should hold a majority of their portfolio in cash to preserve capital.
3
A high equity allocation is required, since this level of real return cannot realistically be achieved from bonds or cash alone.
4
A 30/70 equity/bond split is appropriate for this return target.
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