Piershale Financial Group
Place a more equal weight on both making money and protecting your nest egg.
The goal of a risk-adjusted return is to reduce risk as much as possible in achieving any level of return.
Two financial statistics used to measure risk are Standard Deviation and the Sharpe ratio. With Standard Deviation, the “lower” its number, the less volatile it is compared to other portfolios. With the Sharpe ratio, the “higher” its number in comparison with other portfolios, the less risk it’s taking to get a given level of return.
A 60 percent equity and 40 percent fixed income model has the lowest Standard Deviation over a 3, 5 and 10 year period through 9/30/13 when compared with a 60 percent equity and 40 percent fixed income model in a Buy-and-Hold strategy. Its five year average annual standard deviation of 8.05 percent is 40 percent less volatile than the Buy-and-Hold strategy.