We use 5 different Financial Zen portfolio models for our members’ long-term investment portfolios.
They range from conservative to aggressive and which one we use depends on the results of their risk assessments.
The only difference between the 5 portfolios is how big the bond allocation is.
Bonds act like a volatility dampener, so the bigger the bond allocation the less of a rollercoaster ride you’re in for.
The trade-off for hopping on the merry-go-round instead of the demon drop is that you’ll get smaller long-term returns.
For instance, the average historical return of our conservative portfolio model is 6.63% while our aggressive portfolio model is 9.74%.
When the stuff hits the fan (like last year), the conservative model will be down half as much as the aggressive model.
A question I often get is which one I personally use.
And the answer is unequivocally, 100%, not-even-a-question, the aggressive portfolio model.
Why?
Because that money will NEVER be used for any short-term financial goals, which makes the added volatility a non-issue.
And if volatility is no longer a risk, why would I invest in anything BUT the one with the highest return?
So yes, I eat my own cooking, but only the aggressive recipe.
