Portfolio Risk: Is It Worth Taking a Chance?
Lowell Herr submits: Knowing the return of a portfolio is highly correlated with portfolio uncertainty, is it better to go with an aggressive portfolio or is it preferable to keep the volatility down by tilting toward a conservative asset allocation? The results may be surprising. For this test I selected an array of ETFs that would cover domestic equities, REITs, developed international markets, emerging markets, and various bond options for the conservative portfolio. Both portfolios are tilted toward the value side of the investing spectrum, so both the aggressive and conservative portfolios have a bent toward a moderate investing style. The data table below shows the asset allocation plan for each. No bonds are in the aggressive portfolio. A much higher percentage is allocated to small cap stocks in the form of the IWM and VBR ETFs. Using the Quantext Portfolio Planner software developed by Geoff Considine, certain assumptions are required for theComplete Story »