Grose 

AssetBuilder - Registered Investment Advisor Record breaking is the only way to describe this wild ride!  Did you make it back or did you get off along the way?

    Market volatility – risk – is a way to describe the ups and downs of the market.  Market uncertainty is the emotional measure.  Significant market uncertainty has put “risk” in a personal context …one that every investor has taken measure of. 

    The million dollar question is; “Did you react to market uncertainty and change your investment holdings?”

    If you did, you weren’t alone.  New York Stock Exchange daily share volume – number of shares that are traded – not only broke the four billion share record, it also broke the five billion share record.  This means a whole lot of decisions were made during market uncertainty.

    Investors need to think about investing as a process over time.  Not a decision that needs to be made at some moment in time.  A mistake that most investors make is in reaction to volatility.  They think it creates an investment “to-do” item. 

    The best way to avoid hasty decisions is with a highly diversified investment approach.  We call this approach smart asset allocation.  It is constructing a portfolio that gives you the highest return with the least risk.  It can be done with a technique called mean variance optimization, which is close enough to rocket science to have won its creator, Harry Markowitz, a Nobel Prize in 1990.

    The basic concept of Mr. Markowitz’s study was to combine assets with low correlation – when one asset is up, the other is down – into an investment portfolio.  Treasury bonds – fixed income – are considered less risky than stock – equity.  Yet equity has the potential for higher gain. 

    The result of the basic concept is not so intuitive.  Combining a little equity with fixed income, results in the potential for higher return with less risk.  However, as equity becomes a greater percentage of the investment, the risk is higher and the potential return higher.


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    Mean variance optimization is the process of combining asset classes – equities and fixed income – in an optimal amount to achieve an expected return for a mathematically measured level of risk – standard deviation.  The resulting optimal investment portfolios are defined along a risk/reward curve – efficient frontier.

    We have developed portfolios that represent this knowledge – AB Building Block Portfolios.  Building Block Portfolio 6 has 66% fixed income and would be at the “low risk/low return” end of the efficient frontier.  Building Block 14 has 92% equity and would be at the “high risk/high return” end of the efficient frontier.



AssetBuilder - Registered Investment Advisor


    One of the key benefits of this method is the investor determines the “ride”.  Since we have experienced a high degree of market uncertainty this year, it has brought more focus on risk.  We have a tool which provides a historical perspective and is a great pictorial of the “ride”.  AB Building Block Portfolio 6 is very smooth, as opposed to AB Building Block Portfolio 14 which is more volatile.  http://assetbuilder.com/swf/growthofwealth/assetbuildergrowthofwealth.html

AssetBuilder - Registered Investment Advisor


NO REACTIVE DECISIONS REQUIRED is the label for this smart buy-and-hold investment method.