Risk comes in many shapes and forms. In academia and in much of the investing industry, risk in investing is measured by standard deviation (a measure of how much the price of an asset bounces around).
Now, a standard deviation is, well – academic. This is because, for you and me, the risk is the pain we go through when we lose money. That pain is called draw-down. The draw-down of a portfolio is the amount of money the portfolio will lose in a given year. So, for example, a portfolio with a draw-down of -20% has at some point lost 20% of its value. That’s a good indication of what could happen in the future.
Now, that’s pretty actionable information that we can plan around and relate to.
A rough rule of thumb is that for each 20% of stocks a portfolio has it has a draw-down of -10%. So a 100% stock portfolio has potentially a draw-down of -50%. A 60% stock portfolio has a potential draw-down of -30%.
There are other forms of risk however but the draw-down is what we will focus on when dividing the portfolios into the various risk levels. You should also look at standard deviation as well as the stock to bond ratio.
How the risk levels are determined
We have given the portfolios a risk level from one to three. = 1 – 3.
1 is the least risky but also offers the least reward.
3 is the riskiest but offers the most rewards.
The portfolios have been divided into tertiles. In the first tertile, the first 33.3% represent the portfolios that have the lowest draw-downs. The last 33.3% are the ones with the highest draw-downs.
This page displays the medium-risk portfolios. They are suited for medium-term savings or when you simply cannot see yourself going through a large draw-down that the high risk portfolios potentially will expose you to.
Medium-risk portfolios
Name
See Portfolio
Asset class count
Year to date
Return in 2020
10 year return
CAGR since 1989 (%)
STDEV
Draw Down
Risk level
Expense ratio
60/40 Portfolio
2
2.47%
15.7
9.94
9.29
10.75
-20.13%
2
0.03%
Rick Ferri Core 4 fund Portfolio (60/40)
4
2.19%
12.38
8.14
8.35
10.01
-21.41%
2
0.05%
7Twelve Portfolio
12
4.46%
8.21
5.54
7.96
10.03
-23.15%
2
0.15%
David Swensen Portfolio
6
4.27%
9.7
8.06
9.01
11.16
-25.96%
2
0.07%
Bill Schultheis Coffeehouse Portfolio
7
5.88%
7.21
7.76
8.64
9.76
-20.14%
2
0.07%
Index Fund Advisors, Portfolio 60
16
7.28%
5.64
6.49
8.17
10.33
-22.03%
2
0.13%
Index Fund Advisors, Portfolio 50
16
5.83%
5.47
5.75
7.53
8.64
-17.64%
2
0.12%
The Andrew Tobias Portfolio
3
3.97%
12.45
7.66
7.86
11.85
-28.05%
2
0.05%
The Talmud Portfolio
Coming soon
3
3.92%
8.15
9.03
9.46
10.51
-24.00%
2
0.06%
Ted Aronson Family Taxable Portfolio
11
4.84%
13.12
8.45
8.99
12.69
-26.33%
2
0.11%
Allan Roth Second Grader Medium Risk Portfolio
3
2.01%
13.72
8.25
8.25
10.4
-21.56%
2
0.04%
Allan Roth Second Grader Five-Fund Medium Risk Portfolio
4
2.10%
12.69
8.07
8.25
10.13
-21.56%
2
0.05%
Allan Roth Second Grader Medium Risk with CDs Portfolio
3
3.46%
10.8
6.95
6.96
10.12
-22.77%
2
0.08%
Frank Armstrong Ideal Index Portfolio
7
6.46%
6.8
6.51
7.47
11.0
-25.75%
2
0.08%
Scott Burns Couch Potato
2
3.79%
12.99
8.68
8.86
9.57
-19.88%
2
0.04%
Scott Burns Margaritaville
3
3.97%
12.45
7.66
7.86
11.85
-28.05%
2
0.05%
Scott Burns Four Square
4
2.39%
10.44
6.84
7.44
9.13
-19.56%
2
0.06%
Scott Burns Five Fold
5
3.67%
7.41
7.29
8.1
9.73
-23.04%
2
0.07%
Scott Burns Six Ways from Sunday
6
8.19%
0.77
5.72
8.36
10.81
-26.35%
2
0.08%
Scott Burns Seven Value Portfolio
7
8.60%
1.02
6.54
8.62
11.29
-27.73%
2
0.08%
Scott Burns Seven Value 2 Portfolio
8
10.57%
1.2
6.95
8.93
11.82
-28.25%
2
0.09%
Larry Swedroe Simple Portfolio
6
9.34%
4.45
6.7
8.51
10.8
-23.80%
2
0.12%
Larry Swedroe Big Rocks Portfolio
11
7.02%
4.99
6.21
7.82
9.59
-20.56%
2
0.11%
William Bernstein No Brainer Portfolio
4
7.28%
10.98
8.05
8.15
12.48
-27.62%
2
0.07%
William Bernstein Cowards Portfolio
9
6.44%
6.67
6.67
8.05
9.51
-19.94%
2
0.07%
William Bernstein Four Pillars High Risk Portfolio
11
6.60%
6.7
6.54
8.21
11.98
-27.41%
2
0.11%
William Bernstein Four Pillars Medium Portfolio
6
6.02%
7.86
7.2
7.95
9.33
-19.66%
2
0.06%
The Global Market Portfolio, Financial Engines 2007
15
3.30%
11.52
8.14
8.55
10.97
-22.97%
2
0.08%
Robo Advisor Betterment 60
10
3.76%
9.77
7.28
8.48
10.79
-22.52%
2
0.07%
Robo Advisor Wealthfront 40
7
2.25%
10.25
8.12
8.85
10.95
-25.05%
2
0.08%
Rick Ferri Early Saver Moderate Basic Portfolio
4
3.25%
12.48
8.77
8.68
11.32
-25.77%
2
0.05%
Rick Ferri Early Saver Moderate Multi Asset Portfolio
11
6.41%
9.93
8.43
9.19
11.97
-26.97%
2
0.14%
Rick Ferri Midlife Moderate Basic Portfolio
4
2.26%
11.96
8.13
8.4
9.9
-21.34%
2
0.05%
Rick Ferri Midlifer Moderate Multi Asset Portfolio
11
5.87%
9.07
7.89
8.87
10.95
-24.26%
2
0.16%
Rick Ferri Transitional Moderate Multi Asset Portfolio
12
4.63%
8.57
7.35
8.48
9.61
-20.61%
2
0.16%
Premium Portfolio
2
3.49%
17.03
10.92
9.73
12.31
-24.35%
2
0.03%
Index Fund Advisors, Portfolio 70
16
8.33%
6.53
7.23
8.76
11.92
-25.91%
2
0.14%
The Jack Bogle Portfolio
2
2.47%
15.7
9.94
9.29
10.75
-20.13%
2
0.03%
Paul Merriman Best-in-Class ETFs Portfolio (Moderate)
Disclaimer: There are many factors that go into choosing your right portfolio, though not as many as you would think. Therefore, the information here presented are not specific recommendations but instead for information purposes only.
Now it’s your turn!
Which portfolio are you leaning towards and why?
Why do you think a medium-risk portfolio is right for you?