| |
|
How do I compare?
A portfolio with an asset allocation like club can be expected to return 11.2% per year
with a standard deviation of 19.8%, according to the experts at TeamVest, a well-respected
provider of financial information.
The model asset allocations are designed to generate a similar rate of return
as our current portfolio but with lower risk. The measure of risk we are using is the standard deviation.
Standard deviation is an indicator of how much the rate of return
varies from year to year. You can expect the rate of return to be within one standard deviation of average in
roughly two out of every three years. In the case of club, the range is from -8.6%
to 31%.
The rate of return for an asset allocation is simply the weighted average of the returns for the individual classes.
The same is not true for standard deviation. Suppose two asset classes have high standard deviations, but
when one performs well, the other tends to perform poorly. That is, their performance is not highly
correlated. If these two classes are combined to form a portfolio, the standard deviation of the resulting
portfolio will be less than the weighted average of the two individual standard deviations. A TeamVest model portfolio
is designed to find the combination of asset classes that yields a specific rate of return with the lowest
standard deviation, or risk.
To better understand this comparison, you should keep a few things in mind:
-
While TeamVest created these model portfolios to span a wide risk/reward spectrum,
it is ultimately your responsibility to accept, reject or modify the model allocations.
-
The expected rates of return are forecasted long-term averages.
Actual rates of return in any given year or over a specific span of years may vary, sometimes significantly.
-
The model allocation does not reflect the performance of actual investments.
It reflects only the performance of asset classes as measured by commonly accepted indices and reflects reinvestment of dividends and other earnings.
-
Actual investments are subject to transaction costs and other fees, as well as taxes, which reduce a
portfolio's rate of return.
-
Although TeamVest is a well-respected provider of financial information, Intuit has not verified and cannot guarantee the accuracy of TeamVest's information or the formulas used to generate expected returns and model allocations.
This comparison should only be used as a rough tool to analyze the allocation of one's investments.
Remember, these models are based on commonly accepted asset allocation principles and TeamVest's conservative
assumptions about the long-term performance of the economy.
These assumptions may not turn out to be correct. Consult your financial, tax and other professional advisors.
In terms of risk, this model allocation may be appropriate for an investor with the following characteristics:
Time Horizon: Long-term (More than 5 years)
Risk Tolerance: Can tolerate a potential loss in any given year
Primary Goal: Long-term growth of capital
How do I rebalance?
The table below shows one way you can modify your portfolio to match the model portfolio. It should
be considered a guideline only. If you are close to your target allocation, there may be no need to adjust
your portfolio at all. You should consider brokerage fees and tax consequences before taking any action.
If you own mutual funds, it may not be possible to achieve your target allocation
with the funds you own. Mutual funds often have a money market component. As a result, you may never be able to achieve an allocation comprised of stocks and bonds only. This does not mean that you cannot achieve an acceptable allocation with your current holdings.
Quicken.com's Mutual Fund Finder and Stock Search can help you research potential investments.
|
|
