3-D investing may be almost as cool as 3-D movies. Dont believe us? Talk to us once youre resting comfortably in retirement without a care in the world. 3-D investing is a way of structuring your investments to balance risk vs reward and to skillfully ride the ups and downs that the market can throw at you. This method of investing promotes systematic decision making that will allow your portfolio to thrive.

Data-Driven Process: Weve demystified data-driven process in a previous blo

g, but one simply wasnt enough to stress the importance. To the average investor, a data driven process means your financial advisor is using historical data to decide where and how to allocate your funds into investments. Your level of risk will also determine how your financial advisor uses the markets fiscal history to determine which investments best suit your goals and type of portfolio. A skilled financial advisor can create a portfolio to suit a variety of risk levels utilizing a data-driven process.

Unfortunately, not all data-driven processes are created equal. Typically, less than 50 percent of portfolio managers match or outperform their benchmarks over 3-year and 5-year periods (Standard & Poors Indices Versus Active Funds Scorecard, August 2011). MyRetirementPlan has found success putting more emphasis on three-year data versus five-year or 10-year data. Three-year data falls within the typical five-year business cycle, and the best investments typically will change within that five-year cycle. It is imperative to have a financial advisor that uses a systematic data-driven process. Human judgment is fallible, it can view data and come to different decisions. Machines that use metrics to derive their analysis of data will always come to the same decision, thus giving an edge to financial analytics for determining investments.

Diversification: Diversification of your assets is another extremely important part of systematic investing. If you put all your eggs in one basket, you could end up with a pretty big mess if something goes wrong. If you put all your investments in one area, you set yourself up for unnecessary risk. Too much risk means the potential for too great of a loss. Diversification helps ease this risk and open up more opportunities for reward, as the primary objective of diversification is to manage your risk by spreading your investments around. The market is infamous for being unstable and unpredictable. Diversification attem

pts to eliminate the extreme ups and downs of that risk causing you a considerable loss. For more information on how diversification can help you, MyRetirementPlan has blogs to aid you in diversifying your portfolio and determining optimal allocation.

Discipline: Stick to your plan! Discipline may be the easiest of the 3-Ds to explain, but its usually the most difficult aspect to follow. In order to have successful investments, you must have the discipline to stick to the plan and listen to your financial advisor. Much like a marriage, in good times and in bad, you follow your plan. The stock market is a volatile place, its easy to get spooked by downward turns and over eager when things are good. Stay impartial and dont make drastic changes due to emotional judgment calls. Systematic investing calls for impartial and unemotional investing plans that require discipline to follow through.

3-D investing is an incredibly beneficial way to begin your investing journey. A skilled financial advisor can help in the difficult realms of finding a data-driven process that is proven to succeed and the appropriate diversification for your individual needs. All you need to bring to the table is the discipline to follow their well-laid plan. A systematic approach, like the 3-D approach is a tried and true method to investing. Talk to MyRetirementPlan today and see how we can make your investment dreams a reality.

Risk adjusted return is a concept that measures how much risk is involved in the return. This measurement is generally expressed as a number rating. Risk adjusted returns applies to mutual funds, investment funds, individual securities and other similar methods of investing. The amount of risk is determined by comparing the difference between the investments return against a benchmark. The benchmarks performance compared to the investments return allows for investors to see if there is additional return or loss on an investment. The purpose of risk adjusted return is to deter investors from purchasing high-return assets that come with unnecessarily high risk.


There are 5 different methods of evaluation that go into calculating risk adjusted return. Each method has a different focus for how it measures risk. Here are the 5 methods of determining risk adjusted return:

Alpha: The measure of an investments performance compared to a basic benchmark, such as the S&P 500. Alpha is an indication of what a portfolio manager is bringing to your investments. Depending on the current market, alpha can show if your financial advisor is outperforming, underperforming, or keeping your investments in balance. Alpha is able to measure more-than-average and less-than-average gains and losses in accordance to the given measure. An alpha of 3.0 means an investment has outperformed the benchmark index by 3 percent. Similarly, a negative 3.0 represents underperformance of 3 percent.

Beta: The Beta calculation works in accordance with the alpha calculation. The beta is a measure of the volatility of investments compared to the rise or fall of the stock market. The beta can work with the alpha to deliver a beta-adjusted return.

This means that a portfolio manager who delivers higher returns with less risk has a higher alpha due to the reduced risk involved with the investment. The beta method of evaluation is a supplement to the alpha method of calculation.

R-squared: The r-squared method of evaluation examines the correlation of a portfolios price trends against a benchmark. The r-squared is not a performance measure, unlike the alpha and beta. The r-squared method of evaluation tracks movement that is not relative to return. This means that it measures how your portfolio is going in the grand scheme of things among broader markets. The r-squared statistic is represented in a range of 1 to 100 and tracks how your portfolio moves (up or down) in accordance to the benchmark. If your statistic is 40 percent or lower, a low correlation to the benchmark is suggested.

Sharpe Ratio: this statistic measures return versus risk. The Sharpe ratio is one of the more complicated ratios among the group (we understand this might seem as logical as a foreign language you don't know) but it is essential to investors when measuring risk adjusted return. An investor determines how a fund performs. Then they subtract that return by the amount you would have earned with a risk-free investment during the same investment period. Once you have that number, you divide it by the portfolios standard deviation. The higher the Sharpe ratio the more youve made off the risks youve taken. The Sharpe ratio acts as a measure for risk checkpoints and can determine if your financial advisor is performing well with your stocks.

Standard Deviation: weve all heard about standard deviation from a previous math class, but now it applies to finance too, just in a different way. The standard deviation is a measure of an investments risk and how it varies to the investments average return. The standard deviation is used to track investments from year to year, for as long as up to 36 years. How your investment changes from year to year determines the standard deviation.

Risk adjusted return may seem more complicated than its worth, but ultimately its simply taking a second look at your potential investments. Take a moment to look beyond the headline to determine if the risk associated with that investment is right for your portfolio, itll be well worth the work.

Whether you find investing stressful, want to make sure you have assistance with your portfolios, or simply dont have the time; MyRetirementPlan is here to help you secure your future. With a proven data driven process, we carefully calculate your levels of risk, the risk adjusted return of your potential investments and create a portfolio that meets all your needs. Contact us today for a free consultation.

Every investor dreams of maintaining optimal allocation through each of their investments. We invest because we want to make money. If you put all your eggs in one basket, you could end up with a pretty big mess if something goes wrong. If you put all your investments in one area, you set yourself up for unnecessary risk. Too much risk means the potential for too great of a loss. If you’re nodding along to all those statements, you want optimal allocation among your investments. In it’s most basic form, optimal allocation is the perfect balance of risk and safety for where you choose to invest. This means diverse (yet balanced) stocks, bonds, and cash. These three main categories spider off into an abundance of sub-categories for your investments; large, mid, and small cap sized stocks, mutual funds, real estate, securities, 401(k)s & IRAs. The end goal of optimal allocation is a well-balanced risk vs reward system where you’re assets are primed for a profit, yet you’re protected in case of market downturns.

The balancing act of optimal allocation means you balance your high risk, high reward investments with low risk, low reward investments. This risk-return trade off is made more complicated by an investor’s risk tolerance. An investor who has 20+ years to wait out the fluctuations of the market can have an optimal allocation that sits heavier on high risk, high reward options than an 

investor who is within five or ten years of a retirement. A financial advisor can help you determine what your exact risk tolerance is for your optimal allocation, therefore determining which type of portfolio suits your needs the best.

There are a handful of factors that go into determining your optimal asset allocation. One of the most important factors for determining optimal allocation is return objectives. Return objectives are a plan for the funds you’ll need upon your retirement based on your current state of finances/investments, how much time you have until retirement and additional contributions you pla

n and ideal portfolio. Another major factor is your time horizon, which is essentially how much time you have to ride the market roller coaster before needing your money.n to make leading up to retirement.  Typically, the more time you have before needing your funds liquidated, the more aggressive your portfolio can be, thus affecting your optimal allocatio

The optimal allocation of your portfolio is not a constant state for each individual investment. Since most market fluctuations are small, changes to your allocations should be made no more than quarterly.  As assets increase or decrease in value, the risk associated with that investment could change. Keeping an eye on your portfolio and the way your investments fluctuate will aid in maintaining your desired optimal allocation.

The optimal asset allocation you have today will not be the same one you have in ten years. It’s important to start saving early, as the more time you have to endure the market fluctuations, the more open to bigger profits your investments can be. Optimal allocation is akin to investment risk management; it’s all about keeping your finances safe yet profitable. Schedule a free consultation with MyRetirementPlan to talk to us about setting up a portfolio that meets your individual needs.

You get a dollar, you get a dollar, and YOU get a dollar – okay, so maybe investing isn’t an Oprah episode, but that’s the general idea behind one of the most crucial parts of investing - diversifying your portfolio.  

Don’t even have a portfolio yet? What are you waiting for? Start here: Building Your Portfolio and Aggressive Portfolios.

The goal of diversification is to manage your risk by spreading your money around. We all know how unstable and unpredictable the market can be.  Diversifying your portfolio eliminates the extreme ups and downs and reduces your investment risk. Not having a diverse portfolio is one of the biggest mistakes new investors make.

Tips for creating a diverse portfolio 

  • Consider spreading your investments into each of the different assets: stocks, bonds, and cash equivalents. According to the SEC, a diversified portfolio should be diversified at two levels: between asset categories and within. 
  • Aim for variety, not quantity. Avoid putting all your investments into one specific sector and invest in a variety of companies you trust.  
  • Move beyond the industry your town is famous for. For example, people of Detroit who also invested in the automotive industry probably had a rough few years. Another great option is to expand your investments into international markets.

  • Your portfolio should always be evolving. Your portfolio at 25 should not be the same as your portfolio at 50.  The younger you are the more extremes you can handle because you have time to adjust so don’t be afraid to take a little risk.   
  • Mutual funds can be a great and easy way to diversify your investments. Mutual funds are investment programs funded by shareholders that trades in diversified holdings and are managed professionally. You can have a diversified portfolio in just one investment. With that being said, be familiar with your funds. Investing in one mutual fund doesn’t always mean you’re diversified.

Finding the perfect investment mix for you on your own can be a challenging task, so we recommend jumping right into things with MyRetirementPlan to create the perfect investment plan for you.   

Remember, diversifying your profile is crucial for investment success. For additional tips to diversify your portfolio, visit Investopedia and Forbes. Be sure to keep up on our blog for additional portfolio advice and investment tips.