Prudent Investing

The process of prudent long-term investing requires thorough and thoughtful discernment. The best way to earn optimal returns is by buying and holding a passively managed and globally diversified index portfolio, matching an investor’s risk exposure to his or her risk capacity and relying on 90 years of historical risk and returns data. In Step 10, an explanation of four unique risk capacities was provided for risk capacity scores of 100, 75, 50 and 25. Fact sheets showing risk and return data for the four index portfolios that match those risk capacity scores are provided on the following pages. 

IFA Index Portfolios 100

IFA Index Portfolios 75

IFA Index Portfolios 50

IFA Index Portfolios 25

These portfolio fact sheets consist of simulated passive investor experiences with returns and volatility data, charts that represent annual returns and growth of $1, a 50-year monthly rolling period analysis, and a histogram of monthly rolling periods for the time intervals matched to the average holding periods that are appropriate for each risk exposure. For an investment period of a given length; e.g. three years, this rolling period table will show how many periods there were in the entire 50-year period (in this case, 600), the median annualized return over all these periods, as well as both the highest and the lowest returns that occurred in these periods. The very clear pattern that emerges is that as the period length increases, the median return changes very little, but the range of returns narrows considerably.  We refer to this as the benefit of time-diversification of returns. 

See Appendix A (

Step 11Buy and HoldPrudentOptimal ReturnsGlobally Diversified Index PortfolioRisk Capacity ScoreRisk CapacityFact Sheets