Free Wealth Management Guide Building An Effectively Diversified Investment Por | Page 6

Portfolio One (starting benchmark)

January 1970 - December 2012
Annualized
Return

Portfolio One

Annualized
Standard
Deviation

Growth of
$100,000

8.5%

11.6%

S&P 500
60%

Gov’t/Credit
40%

$3,281,865

Portfolio Two

(shifting fixed income allocation to short
term, high credit quality bonds)
In our portfolio, fixed income (bonds)
is used to provide stability in the portfolio. There are two primary risk factors
when investing in bonds, credit rating and
maturity. Credit rating is a measure of the
financial strength and stability of the company or entity issuing the bond. Maturity
measures the length of time the bond was
issued for.
In general, longer bond maturities have
higher returns and higher standard deviation. However, as you can see in the chart
to the right, when you extend maturities
beyond intermediate term maturities, the
added standard deviation (volatility/risk)
rises much faster than the additional return
you obtain.

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