Browsing: risk

Q. I saw you use the term risk efficiency in a recent response, and it made me curious. I have a nice little amount in the Thrift Savings Plan now. I don’t think I will be needing it in the future, except to hand down to future heirs, and so have tried to maintain a 70 percent stocks (35 percent C, 15 percent S and 20 percent I), 15 percent F, 15 percent G ratio. I read in a financial magazine (sometime around 2009) that a 70/30 ratio of stocks to bonds and/or cash reduced the risk considerably over a…

Here’s the problem with risk: It’s important and few of us understand it very well, much less know how to control it or, better yet, how to use it to our advantage. Risk is like a shark swimming silently below you … in the middle of the ocean … at night. It’s invisible, but, nonetheless, it’s a threat. Imagine that you are stranded at sea, waiting to be rescued. What kind of shark is it? How big is it? Is it hungry? Is it alone, or are there others? These would be good things to know if you were trying…

Q. Your Sept. 24 column in Federal Times made the suggestion to increase allocation in the G Fund at the expense of the other funds, including the F Fund. I have not normally been heavily invested in the F Fund in my 25 years. However, with the F Fund having the second-highest return of any fund since its inception (5.86 percent); that it has never had a negative yearly return; that there is a continually declining performance of the G Fund; and the low probability that interest rates will go up any time soon, I see the F Fund as…

Q: How does one go about determining the most advantageous proportions of all five funds to achieve one’s expected level of return? And after knowing that secret, how does one know when is the right time to to adjust these proportions? A: I can tell you how I do it in my practice. I know of no better way to do it: We use long-term historical data and some practical knowledge to make assumptions about the expected rate of return, standard deviation of those returns and correlation coefficients for each of the asset types underlying the asset types you’ll be…