Transcript
Hello, everybody, welcome to Tuesday. This was pre recorded. I’m on vacation. I will be back on Thursday, I wanted to take a chance to answer some more client questions. One of which is how do we get the most return for the risk that we’re willing to take. And so what I do is I create these indexed based portfolios of the total US international bond stock market. And I’ll walk a client through what I consider one of the worst case scenarios, which was 2008 downturn showing how much it would have lost. And we put that in actual dollar amounts, and we try to figure out, Okay, this is the portfolio that works for them.
So let’s say I have a client that settles on a 40% portfolio. Well, the 40% portfolio using the total market index has dropped 25.6% in 2008. And the potential average rate of return according to risk lies, which is the company that we use to analyze risk is 5.1% a year. Okay, so then I start there. And what I do is I create portfolios that try to maximize within that scenario. So I’ll find a very nice balanced portfolio stocks using the overall stock market, but then these little targeted indexes that we’ve been talking about to add to that. And then I’m really big on trying to create a great parachute out of the bonds, I look at bonds as helping us to make our stock market portfolio work, I’ll use the total bond market indexes. And then I’ll add a lot of treasuries, because treasuries tend to go up when the stock market falls.
And so my current 40% portfolio right now has a projected drop in 2008 of 19.7%. So that’s better. And the average rate of return potential from Riskalyze is 9.6%. That’s awesome. That’s a lot better than 5.1. Theoretically, we can even move up to the 50% model, which has a 24.6% drop in 2008. So about what the 40% world model would do. But the average rate of return is actually 11%. Now, these are projections, and so be careful with that.
Projections are a great place to start. But once you get involved in investment, it needs to be watched daily to make sure that those projections are actually coming true. And so we have to be very careful with that. But it’s been really amazing how you can create portfolios to try to maximize return within a certain level of risk. And that’s one of the things that we do and it has a lot to do with portfolio design. So I want to thank you very much and I look forward to talking to you tomorrow.