There are several methods for measuring your risk tolerance. We have found that one of our clients’ primary concerns in relation to risk involves historical market index returns. The chart below illustrates the high, average, and low returns for different asset allocation styles over time. Understanding which set of returns feels most comfortable to you is a way to gauge your risk tolerance and begin constructing a portfolio that is aligned with your goals and comfort with risk.
This is a hypothetical example and is for illustrative purposes only. No specific investments or actual client portfolios were used in this example. Actual results will vary.
Past performance does not guarantee future results, and current performance may be lower or higher than the performance data quoted. The chart summarizes the high rate of return, low rate of return, and average annual rate of return for the time period January 1, 1981, through December 31, 2020. Returns are based on the historical performance of the underlying indices associated with each asset class and are weighted according to the allocations identified below. Indices are unmanaged and it is not possible to invest directly in an index. Unlike investments, indices do not incur management fees, charges, or expenses. Portfolios listed are made up of the following index mixtures: Conservative—20% S&P 500 Index, 75% Bloomberg U.S. Aggregate Bond Index, 5% Bank of America U.S. 3-Month Treasury Bill Index; Capital Preservation—40% S&P 500 Index, 55% Bloomberg U.S. Aggregate Bond Index, 5% Bank of America U.S. 3-Month Treasury Bill Index; Moderate—60% S&P 500 Index, 35% Bloomberg U.S. Aggregate Bond Index, 5% Bank of America U.S. 3-Month Treasury Bill Index; Growth—80% S&P 500 Index, 15% Bloomberg U.S. Aggregate Bond Index, 5% Bank of America U.S. 3-Month Treasury Bill Index; Aggressive Growth—95% S&P 500 Index, 5% Bank of America U.S. 3-Month Treasury Bill Index.
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