A UBS news release about its study, “The company said the strategy “can empower investors who otherwise might avoid risk altogether” in their retirement investing.
According to the announcement, the strategy involves dividing up assets into three pieces:
- The first piece includes funds required to fulfill the liquidity needs for an individual over some pre-defined time horizon. “The sole purpose of this bucket is to provide an investor with a level of security in any contingency,” the UBS statement said.
- The “core” piece contains the bulk of an individual’s assets and should reflect the investor’s risk preference and be positioned for the maximum return versus risk.
- The “leverage” bucket contains a mix of riskier assets that should be used as a risk overlay and offers the investor the opportunity to dial up or dial down their risk tolerance.
“The risk overlay strategy, provided in the third bucket, offers some probability that investors will be able to at least partially realize their wishes (such as travel or a second home), while at the same time helping to narrow the retirement gap,” UBS said.
Mike Ryan, head of Wealth Management Research – Americas, commented in the news release: “The benefits of a segmented approach are found not so much in characteristics of the portfolios, but the ability to construct a portfolio that addresses the investor’s loss aversion concerns, while at the same time allowing enough financial risk-taking to meet the investor’s goals.”
The UBS report is available here .
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