How Much Can You Bear?

In last week’s edition of Sagacious, we explored the rationale for shifting away from a traditional balanced portfolio (60 percent equities, 40 percent fixed income) based on recent comments from Dr. Jeremy Siegel, a finance professor at Wharton. However, just because a portfolio may be deemed efficient, doesn’t mean that it’s necessarily right for all investors. Furthermore, basing forward return expectations for asset classes on historical data doesn’t guarantee those returns will be realized and should be treated as opinion instead of fact. A recent piece, by Marc Bisbal Arias, illustrates how investors can still wrestle with their own asset allocation, despite understanding what the most ‘efficient’ portfolio for their time horizon and risk tolerance should be. Risk appetite among investors can be drastically different, and in the case of Arias, he touches on his own comfort level and how it differs from what should be the rational portfolio for an investor of his age. For investors, it would be beneficial to not only seek to understand and manage risk through a different lens, but move a step further and aim to completely reconsider the way portfolios are constructed relative to traditional means.