Asset Allocation Evaluator


Questionnaire:

Inflation, the rise in prices over time, can erode your investment return. Long-term investors should be aware that, if portfolio returns are less than the inflation rate, their ability to purchase goods and services in the future might actually decline.

1. Which of the following portfolios is most consistent with your investment philosophy?

Portfolios with the highest average returns also tend to have the highest chance of short-term losses. The table at right provides the average dollar return of four hypothetical investments of $100,000 and the possibility of losing money (ending value of less than $100,000) over a one-year holding period.

Data supplied by Morningstar Investment Management, LLC.

2. Please select the portfolio with which you are most comfortable.
Probabilities After 1 Year
    Possible
Average Value
at the End of
One Year
Chance of
Losing Money
at the End of
One Year
$106,000 16%
$107,000 21%
$108,000 25%
$109,000 28%

Investing involves a trade-off between risk and return. Historically, investors who have received high long-term average returns have experienced greater fluctuations in the value of their portfolio and more frequent short-term losses than investors in more conservative investments have.

3. Which statement best describes your investment goals?

Historically, markets have experienced downturns, both short-term and prolonged, followed by market recoveries. Suppose you owned a well-diversified portfolio that fell by 20% (i.e. $1,000 initial investment would now be worth $800) over a short period, consistent with the overall market.

4. Assuming you still have 10 years until you begin withdrawals, how would you react?

The graph at right shows the hypothetical results of four sample portfolios over a one-year holding period. The best potential and worst potential gains and losses are presented. Note that the portfolio with the best potential gain also has the largest potential loss.

5. Which of these portfolios would you prefer to hold?
This is an image of a graph showing that Portfolio A: Gains of 45% with losses of 26%.Portfolio B: Gains of 34% with losses of 20%.Portfolio C: Gains of 26% with losses of 15%.Portfolio D: Gains of 15% with losses of 7%.

6. I am comfortable with investments that may frequently experience large declines in value if there is a potential for higher returns.
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