Selecting Portfolio Solutions Based on the
Attitude Toward Loss

Abstract

This article develops a framework to select financial investment products along the dimensions of return, risk, and loss. The focus is on investment products that combine allocations to various asset classes, so-called portfolio solutions. Many of such products express asymmetric return ambitions in their investment policy, which calls for other measures of comparison than mean and variance. The framework therefore builds on upside potential and downside risk and the balance between them as guidance for the client’s attitude toward loss. The selection points clients to the investment that best fits their preferences and assists the financial advisor in making optimal use of a diversified product offering.

TOPICS: Portfolio construction, risk management, performance measurement