Personal Risk Budget (Average Volatility): Based on the estimated Annual Downside Tolerance accepted by the Client, an estimation of the expected long-term average volatility expressed in the mean standard deviation of portfolio returns.
Barclays Capital U.S. Aggregate Bond Index: A market capitalization-weighted index representing U.S. traded investment grade bonds. The Index includes Treasury securities, Government agency bonds, Mortgage-backed bonds, Corporate bonds, and a small amount of foreign bonds traded in U.S.
Beta: The measure of an asset’s risk in relation to the market (for example, the S&P 500 index) or to an alternative benchmark or factors. Roughly speaking, a security with a beta of 1.5 will move, on average, 1.5 times the market return.
Beta Assumption: Level of portfolio risk that is explained by market behavior. This calculation is based on an assumed number for the Risk Budget, and a calculated number for the Portfolio Results.
Contribution to Volatility: Measures the % of the total portfolio volatility that is attributable to each position within the portfolio.
Current Volatility: The one year observed volatility expressed in the standard deviation of daily portfolio returns, updated monthly. This calculation is based on a target number for the Risk Budget, and a calculated number for the Portfolio Results.
Estimated Annual Dollar ($) and Percentage (%) Downside Tolerance: The maximum anticipated decline in investment value over any 365-day period within a reasonable statistical probability. There is no guarantee that a portfolio will not exceed the downside tolerance.
MSCI EAFE® (Europe, Australasia, Far East) Index: A free float-adjusted market capitalization weighted index designed to measure developed market equity performance.
The Standard & Poor’s 500 Index (“S&P 500”): An unmanaged stock market index based on the market capitalizations of the 500 largest companies that trade on the New York Stock Exchange (“NYSE”). The long term average volatility of the S&P 500 is approximately 16.