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Step 11: Risk Exposure

Figure 11-1

Risk-Calibrated Portfolios The stacked chart of Figure 11-1 shows the general asset class allocations for 20 of 100 different risk-calibrated Index Portfolios. The Index Portfolio number matches the equities (stocks) allocation of that portfolio; i.e. Index Portfolio 20 has a 20% equities allocation, and Index Portfolio 80 has an 80% equities allocation. In the chart, gold represents each portfolio’s weighting in fixed income, and burgundy represents its percentage of equities. Almost all of the asset allocations carry the same asset class components — fixed income, U.S. stocks and non-U.S. stocks and REITs — but weighs each differently. For example, the least risky Index Portfolio displayed, number 5, is heavily weighted in fixed income, carrying very little global equity exposure. This portfolio is well suited to an investor with

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