Comparing Risks Among Adaptive Investment Planning Strategies

Abstract

The author presents a scheme that will help investors and financial advisers compare adaptive strategies for maintaining a robust financial plan over a time horizon. The article describes some methods for setting reasonable and attainable financial goals and suggests a schedule of investment allocation decisions designed to meet those goals. Monte-Carlo simulation provides data regarding the potential long-term outcomes associated with an adaptive plan. With this model, a number of different metrics for investment risk can be calculated to help the investor achieve an appropriate trade-off between minimizing investment risk and maximizing the probability of meeting or exceeding a portfolio target.

TOPICS: Wealth management, simulations, portfolio construction, performance measurement