Portfolio construction

Improving the odds of meeting a portfolio return target

November 27, 2023

Two area charts show the asset allocation of two portfolios, the market-cap-weighted benchmark portfolio and the return-target portfolio, from December 2017 to December 2022. The asset allocation remained static for the benchmark portfolio, whereas the asset allocation varied over time for the return-target portfolio. The asset mix consisted of the following: U.S. equities, REITs, developed markets ex-U.S. equities, emerging equities, U.S. aggregate bonds, U.S. short-term Treasuries, U.S. long-term Treasuries, total U.S. credit, and international bonds.
A table shows the probability of meeting a return target based on investor risk approach. For a return target of 4%, the probability is about 91% with an aggressive approach, 89% to 91% with a moderate approach, and 88% to 89% for a conservative approach. As return targets increase, probabilities go down; for all return targets, a more aggressive risk stance consistently has the highest chance of success. For a return target of 6%, the highest target shown, the probability is about 60% with an aggressive approach, 55% to 59% with a moderate approach, and 50% to 53% for a conservative approach.


Victor Zhu, CFA, CAIA
Ziqi Tan
Brett Dutton, CFA, FSA
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