TITLE

Semivariance in Asset Allocations: Longer Horizons Can Handle Riskier Holdings

AUTHOR(S)
Beach, Steven L.
PUB. DATE
January 2007
SOURCE
Journal of Financial Planning;Jan2007, Vol. 20 Issue 1, p60
SOURCE TYPE
Academic Journal
DOC. TYPE
Article
ABSTRACT
The investment horizon of investors critical in establishing proper asset allocations, This article uses semivariance and standard deviation as risk measures in determining the historically optimal allocations to a bond index a small-stock index with a large-stock index over investment horizons of 10, 15, and 20 years. • Semivariance assesses the downside risk of an investment, so it is helpful examining the concerns of investors about investment shortfalls. • The most surprising finding is that the reward-for-semivariance results consistently indicate a higher allocation to the riskier assets than the reward for standard deviation (Sharpe ratio) assessments indicate, except for similar allocations by the two metrics for the large stock and corporate bond portfolios at a 20-year horizon. • Over longer investment horizons, greater allocations to the riskier asset appear to provide the best return for risk. This result is consistent when using either semivariance or standard deviation as the risk measure. • The results support the common advice of greater allocations to riskier assets for long-horizon investing. Long-term asset allocations based on short term reward-to-risk assessments could lead to an overweighting on low-risk assets and reduce ending portfolio values.
ACCESSION #
23722773

 

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