Building A Simple Portfolio

With the asset universe identified along with investment goals, risk profile and time horizon are defined, the next step is to construct an investment portfolio. One of the most common portfolios is the stock/bond mix. The reason that the stock/bond portfolio is popular is that it utilizes two of the most common investments to construct multiple portfolios that meet different investment return and risk characteristics. Over the long term, stocks outperform bonds but have higher risk. Stocks can lose 40% or more of their value during a bear market. The figure shows the drawdowns for both stocks and bonds from 12/31/71 through 2/28/17.

The return and risk characteristics are controlled by the relative weighting of stocks to bonds. In general, higher return and risk is associated with a higher weighting of stocks with respect to bonds.Here is the performance characteristics of a ratio of stocks (S&P 500) and bonds (10-yr US Treasury) from the same time period.

 

Disclosure:

The information presented here is the opinion of the author and may quickly become outdated and is subject to change without notice. All material presented in this article are compiled from sources believed to be reliable, however accuracy cannot be guaranteed. No person should make an investment decision in reliance on the information presented here.

The information presented here is distributed for education purposes only and is not an offer to buy or sell or a solicitation of an offer to buy or sell any security or participate in any particular trading strategy.

Performance data showing past performance results is no guarantee of future returns.

Performance data showing past performance results is no guarantee of future returns.

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