The prudent use of leverage can help investors employ more
risk efficient portfolios without necessarily sacrificing potential returns.
One way to approach this problem is to think about what
a risk efficient portfolio might look like.
Not exact matches
Based on modern
portfolio theory and the
efficient frontier, return is maximized for a given level of
risk through asset class diversification.
The
efficient frontier is made of
portfolios that offer the greatest expected returns for a given level of
risk... or vice versa, the lowest
risk for a given level of expected returns.
Our research shows that constructing a
portfolio holding tax -
efficient broad - market stock investments in taxable accounts and taxable bonds in tax - advantaged accounts can minimize taxes and add up to 0.75 % of additional net return in the first year, without increasing
risk.
If you find yourself on the
efficient frontier past the tangency point (see above), one can easily show that reducing
risk involves no cash holdings, but rather keeping all of your
portfolio in risky assets.
If instead you walk along the
efficient frontier you can reach the same expected
risk level but with a higher expected return (or alternatively the same expected return but lower
risk) than the
portfolio with emergency cash.
Academics have been shouting from the rooftops about
risk -
efficient portfolios (minimum variance, minimum correlation, minimum expected shortfall etc) and their merits, for some time now.
What finance theory does say is that when a
portfolio is
efficient, the only way to increase expected return is to load additional
risk.
Portfolios that cluster to the right of the
efficient frontier are also sub-optimal, because they have a higher level of
risk for the defined rate of return.
By
risk efficient I mean a
portfolio that provides potential income without taking on too much
risk to do so.
The
efficient frontier is the set of optimal
portfolios that offers the highest expected return for a defined level of
risk or the lowest
risk for a given level of expected return.
The points on the plot of
risk versus expected returns where optimal
portfolios lie is known as the
efficient frontier.
The
efficient frontier is a curve which represents all the points where for a given level of
risk (as measured by standard deviation) of a
portfolio you are achieving the optimal rate of return.
One of the most fundamental ideas in
portfolio design is the so - called
efficient frontier — the sweet spot where you'll enjoy the highest rate of return for each unit of
risk.
Any
portfolio that lies on the upper part of the curve is
efficient: It gives the maximum expected return for a given level of
risk.
It suggests that combining a stock
portfolio that sits on the
efficient frontier with a
risk - free asset, the purchase of which is funded by borrowing, can actually increase returns beyond the
efficient frontier.
Cost and tax
efficient portfolio construction and ongoing management based on your
risk tolerance, time horizon and cash flow requirements.
The
efficient frontier is drawn from the
risk - returns of various combinations of
portfolio assets.
Most
efficient frontier
portfolios (
portfolio with highest expected return per unit of
risk) and long term strategic allocations with the highest sharp ratio are ~ 60 - 70 % U.S. domestic, 20 - 30 % Int» l Developed, and 5 - 10 % Emerging Markets (ticker VWO)
In the last couple of decades, asset allocation experts have strived to create more
efficient portfolios designed to squeeze out every last basis point without adding additional
risk.
This is a much more
efficient, cost - effective way of Protecting a
Portfolio Against Systematic
Risk and is rather unique to Swan's DRS.
They point is that you are eliminating a high percentage of
portfolio risk with a more
efficient allocation.
Portfolios that fall below the
efficient frontier provide less return for each level of
risk.
¹²³ This makes sense since a
portfolio that perpetually grows into a stock heavy
portfolio can not be an
efficient risk management
portfolio since the equity market can not mathematically become the entire pool of financial assets.
Orcam Financial Group specializes in constructing diversified, low fee, tax
efficient portfolios that match an investor's
risk profile with the cyclical changes in the markets as the business cycle evolves.
The
efficient frontier tool shows the return and
risk curve for the mix of the selected assets that minimizes the
portfolio risk for the given expected return.
Efficient Advisors»
portfolio models will deploy Dimensional's mutual funds to build factor - based
portfolios at various levels of
risk so advisers can address their clients» goals and needs.
Based on Modern
Portfolio Theory, they offer personalized investment
portfolios of index funds with designed to adjust according to your personal
risk tolerance while staying diversified and tax -
efficient.
We earn our fee by helping people implement a disciplined savings strategy, helping them determine the appropriate amount of
risk, ensuring their
portfolios are tax -
efficient and educating them about the importance of staying the course.
An
efficient portfolio has the least possible
risk for a given return.
This allows creating very
efficient portfolios by optimizing the
risk / return ratio for each
risk profile.
Implementing Fama's premises, Booth (and retired co-founder Rex Sinquefield) set out to capture market returns, while seeking to enhance those returns through very
efficient trading methods and by tilting the market
portfolio toward small companies and value stocks; Fama's other research (together with Ken French) showed that small and value stocks delivered compensated
risk exposures — additional returns for the additional
risk taken.
The first two are then plotted on a graph to create the «
efficient frontier»: a line that denotes the maximum return possible for a given
portfolio at a given level of
risk.
The curve includes
risk and return characteristics that are not on the
efficient portfolio horizon.
The evidence is that adding complexity, in the form of mortgage - backed securities or credit
risk, hasn't been rewarded in the form of more
efficient portfolios.
That strategy has produced more
efficient portfolios, thanks to diversification of
risk.
You want your
portfolio to be
efficient — to have the highest average return, given the highest
risk you are prepared to accept.
The objective of this
portfolio is to produce
efficient,
risk - adjusted returns with limited correlation, less volatility and more consistency than traditional asset classes.
They then simply apply an HML coefficient to a
portfolio of value stocks and — abracadabra — the expected return is higher than the market return but explainable within the
efficient markets world because of the additional
risk attributable to value.
Our research has shown that constructing a
portfolio to hold tax -
efficient broad - market stock investments in taxable accounts and taxable bonds in tax - advantaged accounts can minimize taxes and add up to 0.75 % of additional net return in the first year, without increasing
risk.
Use the
portfolio optimizer tool to run optimize
portfolios based on mean - variance, conditional value - at -
risk (CVaR), or drawdowns, and explore the
efficient frontier of the
portfolio assets for a given time period.
Efficient frontier — Wealthfront calls this the representation of «the
portfolios that generate the maximum return for every level of
risk.»
I am capable of implementing
efficient and innovative
portfolio management for all energy stock trades, while assessing and managing
risk to the client and company I represent, while ensuring each company's daily operational aspects are conducted in a highly professional manner and adhered to corporate standards, industry regulations, professional ethics, and applicable laws.
Analyzed and evaluated
risk / return profiles of possible asset allocations using wealth projection analysis to identify most
efficient portfolio given investment horizon and
risk tolerance.
Professional Duties & Responsibilities Determined client financial goals and created comprehensive investment
portfolios Recommended funds, allocation percentages, and
risk management products Performed market and investment research, analysis, and asset allocation studies Authored market and
portfolio commentaries and customer correspondence Generated product sales through cold calling, networking, and client presentations Oversaw loan process, determined
risks, and recommended course of action Trained and supervised junior associates ensuring effective and
efficient operations Experienced in legal compliance, research, and document creation Developed marketing and development plans as well as all collateral materials Resolved customer service inquiries resulting in client satisfaction and repeat business Performed all duties in a positive, courteous, and timely manner
Financial Advisor / Consultant • Identified and developed leads of prospective clients of financial planning and investment services, focusing on generating sales to potential and existing clients as well as maintaining high - quality customer service, growing client base organically • Developed investment policy statements and strategy guidelines for individuals and corporations, utilizing
portfolio theory and asset allocation techniques to manage
risk and drive
efficient return • Performed needs - based assessments to derive appropriate solutions for individual and corporate clients, generating genuine rapport and establishing productive relationships with clients, colleagues, and staff • Promote high - quality client service with extensive research and the quality presentation and communication of complicated market - and investment - related data • Utilized tools in estate planning, tax planning, investments, retirement, and asset protection to create financial plans and develop investment allocation strategies for high net worth clients
Professional Experience Waddell & Reed (Naperville, IL) 2009 — Present Financial Advisor • Identify and develop leads of prospective clients of financial planning and investment services, focusing on generating sales to potential and existing clients and maintaining high - quality customer service • Establish investment policy statements for individuals utilizing
portfolio theory and asset allocation techniques to manage
risk and drive
efficient return • Employ tools in tax planning, investments, retirement strategies, education savings, asset protection, and heath care needs to address client concerns • Provide comprehensive estate planning services, including the drafting of wills and other legal documents