Nov 03

Portfolio #5: Conservative

Tag: Beginning Investors, Research — Physlab @ 3:45 am

I would call the following a very conservative portfolio. We will follow Lydon and Wasik’s lead and call it a conservative portfolio.  Below are the holdings and the target percentages.

  • SPY = 10%
  • RSP = 10%
  • EFA = 10%
  • TLT = 10%
  • SHY = 20%
  • IEF = 20%
  • TIP = 20%

The conservative portfolio yielded the following projections.

  • Return = 4.73%
  • Standard Deviation = 5.6%
  • Portfolio Autocorrelation = 60.86%
  • Diversification Metric = 36%
  • R^2 = 76.2%

Readers likely noticed that in no portfolio did an asset target percentage dip below 5%.  That is a common minimum as anything lower has little impact on the portfolio.  Avoid target allocations lower than 5%.

In all five portfolios, the PA value is quite high.  This is due to the short (three-year) period used for the analysis.  Three to four years is the recommend period by the developer of the Quantext Portfolio Planner (QPP) software.

When setting up a portfolio, one of my goals is to see the projected return be similar in value to the standard deviation.  In addition, I want to see the DM value exceed 60%.

Lowell Herr

Photograph:  Villefranche, France - photo by Kenneth Appel

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