How-To
Portfolio Optimisation
Optimised How-To Request:
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Bob wants to invest in a risk 5 strategy over 10 years
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He has UK Equity, US Equity and Cash funds available to him, but he doesn't know how much he should invest in each fund.
{ "optimisedFunds": [ { "code": "Returns_File_UK_Equity" }, { "code": "Returns_File_US_Equity" }, { "code": "Returns_File_Cash" } ], "targetOptions": { "term": 10, "funds": [ { "code": "risk5", "riskGroup": 10, "contributionPercentage": 100 } ] } }
Optimised How-To Response:
- In order to be as close as possible to achieving a risk 5 profile over 10 years, Bob should invest his money in line with 58.8% cash, 22.4% UK equity and 18.8% US equity
- Bob's target and optimised volatilities are extremely similar and we are therefore able to tell that Bob can achieve his target using the funds he has available
{ "assetAllocation": [ { "code": "Returns_File_Cash", "name": "Cash", "contributionPercentage": 58.809999999999995 }, { "code": "Returns_File_UK_Equity", "name": "UK equity", "contributionPercentage": 22.439999999999998 }, { "code": "Returns_File_US_Equity", "name": "Overseas equity", "contributionPercentage": 18.75 } ], "fundAllocation": [ { "code": "Returns_File_UK_Equity", "name": "UK equity", "contributionPercentage": 22.439999999999998 }, { "code": "Returns_File_US_Equity", "name": "Overseas equity", "contributionPercentage": 18.75 }, { "code": "Returns_File_Cash", "name": "Cash", "contributionPercentage": 58.809999999999995 } ], "targetVolatility": 0.24866777658462524, "optimisedVolatility": 0.2486662843537884 }
Unoptimised How-To Request:
- Bob wants to invest in a risk 3 strategy over 15 years
- He has UK Equity and Property funds available to him, but he doesn't know how much he should invest in each fund.
{ "optimisedFunds": [ { "code": "Returns_File_UK_Equity" }, { "code": "Returns_File_Property" } ], "targetOptions": { "term": 15, "funds": [ { "code": "risk3", "riskGroup": 5, "contributionPercentage": 100 } ] } }
Unoptimised How-To Response:
- In order to be as close as possible to achieving a risk 3 profile over 15 years, Bob should invest his money in line with 56% property and 44% UK equity.
- Bob's optimised volatility is significantly higher than his targeted volatility, implying that his optimised fund is a higher risk than he targeted. By including a lower risk fund he may be able to improve his optimised portfolio.
{ "assetAllocation": [ { "code": "Returns_File_Property", "name": "Property", "contributionPercentage": 55.96 }, { "code": "Returns_File_UK_Equity", "name": "UK equity", "contributionPercentage": 44.04 } ], "fundAllocation": [ { "code": "Returns_File_UK_Equity", "name": "UK equity", "contributionPercentage": 44.04 }, { "code": "Returns_File_Property", "name": "Property", "contributionPercentage": 55.96 } ], "targetVolatility": 0.41763246059417725, "optimisedVolatility": 0.4911515322485676 }