ANALYZE YOUR FIVE DIMENSIONS OF RISK EXPOSURE
About 97% of the returns of diversified portfolios of index funds are explained by their exposure to five dimensions of risk. They include market, size, and value for equities, and term and default for fixed income. Once investors determine their risk capacity, they will be matched to an asset allocation which corresponds to an index portfolio. Index funds are best for minimizing fees and taxes, while maximizing diversification and expected returns. A simulated index portfolio has beaten the S&P 500 Index by about 2.5% annualized for the last 50 years at a similar risk level and net of fund and investment advisory fees.
IFA’s 20 risk-appropriate Index Portfolios enable institutions
to invest according to their own unique risk capacity as measured
by the risk capacity score. Each Index Portfolio is comprised
of risk-appropriate blends of as many as 15 indexes. IFA’s
Index Portfolios provide substantial global diversification
with investments in 18,000 companies in 40 different countries.
The risk and return statistics for various time periods for
the 20 IFA Portfolios and the S&P are detailed below.
Additional Charts and Graph from Step 11