Investors want to achieve a sustainable income during their lifetimes (especially during retirement), by investing their savings.
The problem is that markets are unpredictable and often too volatile. Historically, during the last 20-years, stocks have delivered returns varying widely between 2% and 18% per year. The maximum loss during 2008 was 60% and during 2000 was 35%.
To resolve this uncertainty, investors should select investment strategies which generate sustainable profitability with low volatility. Volatility describes the degree to which an asset’s price moves up and down. Volatility describes the investment’s risk. Usually, during periods of high volatility, asset returns tend to be lower and during low volatility asset returns tend to be higher. When an asset’s volatility spikes, it often leads to big asset losses.
See the infographic below which presents analysis of how to structure asset allocation strategies