Portfolio Risk Budgeting

Various studies have suggested that about 95% of an investor’s return can be explained by asset allocation. Security selection and market timing have been shown to contribute far less to a portfolio’s return. Therefore we put the great care and attention into asset allocation recommendations. The following document explains the current suggested allocations for clients of Social Thread.

Asset Allocations

We have developed the following recommendations to help clients choose appropriate investments based on risk tolerance. There are three allocations described here ranging from conservative to aggressive.  Generally speaking the longer your time horizon and the greater your comfort with risk, the more aggressive you can be. The charts below illustrate the current recommended asset allocations.

Major Asset Type

The first set of charts illustrates the allocations among major asset classes such as: US Equities (Stocks), Foreign Equities, US Bonds, Foreign Bonds, and Hard Assets. The most conservative portfolio is on the left, the most aggressive on the right.

Detailed Asset Classes

This second set of charts illustrates the same asset allocations seen above, but breaks the major asset classed down in more detail. Again the risk increases left to right.

Security Selection

Many factors may constrain an investor’s choice of which securities to use. We custom build many of our client’s portfolios. In the case of fee-based accounts over $25,000 we have a standard set of recommended mutual funds and ETFs to utilize in implementing these asset allocations. For smaller accounts under $25,000 we work within the limitations of commission structures and ticket charges to keep expenses reasonable. Small accounts may be difficult to allocate among so many asset classes because each fund has a minimum investment. Because of this, such accounts may start with a single conservative asset class and build out the remaining classes over time.  For accounts over $200,000 we may utilize individual stocks and bonds where possible. For many investors funds and ETFs are a more affordable way to achieve diversification. Custom portfolios are available.

Disclosures & Disclaimers

Securities and investment advisory services are offered through Cadaret, Grant & Co., Inc., a member of FINRA/SIPC and a SEC registered investment advisor. Please see Cadaret Grant’s ADV Part II for more information regarding investment advisory services.