The Risk Return Continuum

One way for an investor to find an asset allocation suitable to his risk tolerance is to track the behavior of a set of model portfolios. The investor considers the historical returns achieved by various diversified portfolios, each of which differs according to its percentage allocation to fixed income (bonds) versus equities (stocks). A low variance portfolio owns a greater percentage of fixed income investments, while a high variance portfolio allocates more to stocks. Using this method, the investor can better understand the consequences of an asset allocation election along a continuum of risk/return choices.

Schultz Collins provides yearly updates on important investment risk factors. These include: (1) the Size Premium, (2) the Value Premium, (3) the Market Premium and (4) a comparison of international and U.S. stock return realizations.

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