Hi folks,
I'm a student in the UW CFRM program. I just completed the QFCF certificate and am now working on the CFIN certificate. The only type of portfolio optimization I have worked with, thus far, is mean-variance optimization. Well, I have also experimented with maximum Sortino optimization as well. Then, there is risk-parity and equal weighting, but these are trivial.
Let's say I want together a portfolio of mutual funds for a retirement portfolio, from the below list. The goal of this portfolio is aggressive growth, with little regard to risk. This risky portfolio represents only about 25% of a larger portfolio; the other 75% is invested in risk-free accounts yielding between 2.2% - 4.1%.
Let's say, hypothetically, this portfolio is for a couple aged 71 and 73, who don't need to touch the money. Let's assume they receive pensions that cover all of their expenses, and then some.
Is it actually worth paying a retirement professional something like 1% a year to choose the proper blend of mutual funds for this portfolio?
Would I be just as well off doing mean-variance optimization, or just using equal weighting or volatility-parity weighting on my own? It seems like most retirement professionals don't actually know that much about what they are doing, if you quiz them on what methods they use.
You might ask why the goal is to invest only 25% of the portfolio into risky assets. Well, firstly, one of the owners is highly risk-averse, overall, but wants some exposure to the markets. Secondly, it does seem like the S&P 500 is overvalued, currently, according to the CAPE ratio, P/E ratio, and other valuation methods. The idea, here, is to invest a portion of the portfolio into risky assets now, and potentially add more exposure to risky assets if there is a major correction somewhere down the line. If there is no correction, at least some of the upside is captured.
Any help would be GREATLY appreciated.
Ticker Type Subtype Name
PTRAX Bond Int-Long PIMCO Total Return Admin Bond fund
VBTLX Bond Int-Long Vanguard Total Bond Market Index Adm
VAIPX Bond Int-Long Vanguard inflation protected securities
MHYIX Bond Aggressive MainStay High Yield Corporate Bond I
VFIAX Stock Large-cap Vanguard 500 Index Admiral
NBSTX Stock Social Neuberger Berman Socially Rspns Tr
JVMIX Stock Mid-cap JHancock Disciplined Value Mid Cap I
VIMAX Stock Mid-cap Vanguard Mid Cap Index Admiral
VSMAX Stock Small-cap Vanguard Small Cap Index Adm
VGSLX Stock REIT Vanguard REIT Index Adm
RERCX Stock International American Funds Europacific Growth R3
VTIAX Stock International Vanguard Total Intl Stock Index Admiral
LZEMX Stock International Lazard Emerging Markets Equity Instl
PDRDX Multi-asset Tangible assets Principal Diversified Real Asset Instl
SHSAX Stock Biotech BlackRock Health Sciences Opps Inv A
