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Since organizations have different risk tolerances, no
one portfolio along the efficient frontier is right for
all organizations. In order to track how changing market
conditions, valuations, and expected asset class returns
affect the composition of portfolios along the efficient
frontier, we have picked a benchmark portfolio to follow
over time. The benchmark portfolio is one with an
expected return of ten percent. We track this portfolio
in two forms, with and without venture capital.
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THE 10% PORTFOLIOS
The
following table shows the optimal asset allocation for a
ten percent return portfolio according to the Advisor’s
latest expected returns, risks and correlations for and
among asset classes (for details see Allocation basics).
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Asset Allocations for Portfolios with an Expected Ten Percent Return |
| Asset
class |
Portfolio without Venture Capital |
Portfolio with Venture Capital |
| U.S. large-cap
stocks |
15.5% |
7.3% |
| U.S. small-cap
stocks |
13.1% |
10.8% |
| UK stocks |
8.0% |
3.3% |
| Euro area stocks |
3.8% |
2.3% |
| Japan stocks |
6.7% |
4.8% |
| Emerging-market stocks |
4.4% |
5.0% |
| Venture capital |
n/a |
9.3% |
| Real estate |
5.9% |
7.7% |
| Commodities |
25.7% |
23.7% |
| Intermediate-term Treasuries |
0.1% |
0.7% |
| Long-term Treasuries |
1.5% |
2.2% |
| TIPS |
0.5% |
1.2% |
| Long-term corporate bonds |
0.8% |
1.2% |
| High-yield bonds |
2.5% |
4.0% |
| Mortgage-backed bonds |
7.9% |
11.5% |
| Foreign investment-grade
bonds |
2.1% |
2.9% |
| Emerging-market sovereign
debt |
1.5% |
2.1% |
| Total |
100.0% |
100.0% |
| Expected return |
10.0% |
10.0% |
| Expected risk |
11.2% |
10.8% |
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West Hartford