Question: “Which return/volatility level are you most comfortable with?”
Return/volatility comfort or level of risk tolerance affects
both the asset mix and the Core/Specialty
Mix Core investments are investments that have relatively low volatility,
and are usually diversified, actively managed or have larger capitalization.
Specialty investments are investments that have relatively high volatility,
and are usually dedicated to a single sector or market, aggressively managed,
or have smaller capitalization.
in a portfolio. It
should be considered when making any adjustments that could increase the
portfolio's volatility.
An investor's comfort with volatile investments and his or her knowledge and experience with investing determines the amount of adjustment we make to the Asset Mix The ratio of income investments to equity Investments..
The specific guidelines are:
For an aggressive investor with high return/volatility comfort or tolerance and average to sophisticated investment knowledge and experience, add 10% to equity Investments that are based on stocks and securities. investments
For an investor with no strong view on return/volatility, leave the Asset Mix unchanged regardless of his or her investment knowledge and experience.
For a conservative investor with low return/volatility comfort or tolerance, add 10% to income Investments that are based on bonds and dividends. investments regardless of his or her investment knowledge and experience.
|
Return/ Comfort |
Adjustment to Basic Asset Mix | |
|
Income |
Equity | |
|
Low |
+10% |
-10% |
|
Medium |
no change |
no change |
|
High |
-10% |
+10% |
An investor’s comfort with volatile investments (along with financial means and investment knowledge) is used to determine the prudent maximum specialty amount recommended for Core/Specialty mix in a custom portfolio
In general, conservative investors with low volatility/return comfort or tolerance should focus on core investments. On the other hand, aggressive investors with high volatility/return comfort or tolerance can increase the focus on specialty investments.
The specific guidelines are:
|
Return/ Comfort |
Adjustment to Core/Specialty Mix | |
|
Core |
Specialty | |
|
Low |
0% |
-10% |
|
Medium |
-10% |
+10% |
|
High |
-20% |
+20% |
Return/Volatility Comfort Concepts
Determining Return/Volatility Comfort