What Is Financial Model Portfolio Building?


When people engage in structured financial planning, they're often encouraged to build their portfolios around their circumstances and goals. For example, a 25-year-old planning for retirement is likely to use a lower-risk and longer-term strategy than a 45-year-old who's just getting started toward the same goal. The 45-year-old has to make up for lost time, and that means a portion of their portfolio has to be aimed at building wealth faster.

Enter Financial Model Portfolio Building

For an investment portfolio building services firm, one of the biggest concerns with any strategy is inducing biases. A financial planner can be pretty clever, but human beings have limits. This is where a financial model portfolio building service can become helpful.

The goal of building a portfolio based on a financial model is to take some of the human element out of the equation. A client will explain to the professional who offers investment portfolio building support services what their profile is in terms of age, income, debts, long-term objectives, and risk appetite. This information will then be fed into a computerized model that will structure a portfolio intended to get the client to their goals.

Statistical Methods

A big part of the process is using statistical methods to evaluate potential investment mixes and opportunities. For example, someone who wants a fairly low-risk profile might end up with a modeled portfolio with a heavy mixture of real estate and tax-preferred investments. Conversely, an individual who's looking to max out growth potential might arrive at a portfolio filled with options trades, aggressive growth stocks, and even more exotic investments like cryptocurrencies.

Each portfolio is modeled using accepted statistical modeling methods. A model designed for someone who has a low appetite for risk, for example, might be focused on hedging and making sure tail risks don't wipe the portfolio out. The high-risk model, on the other hand, may be designed to identify potential buying opportunities in companies that are just getting started on the rollercoaster ride of the growth curve.

Building in Changes

Another advantage of this sort of approach is that changes can be built into the process. Perhaps you want to retire in 20 years. In the early years of your plan, there's a lot of potential upside in being aggressive. As you approach retirement, however, the model will try to automate the process of taking money off the table from high-risk-high-reward investments and moving it into steadier-earning ones.

Reach out to a professional who assists with financial model portfolio building for more information. 


28 July 2020

Choosing the Best Financial Plan

There are several ways to become more independent, but if you aren't careful, you might spend extra time and energy taking care of everything from selecting the right financial plan to moving forward with different elements of your financial picture. Knowing how to identify and resolve challenges involved with finances is critical if you are concerned with bettering your situation. For instance, if you have a problem with spending, finding a way to curb your own spending can really help. If you struggle with saving, moving forward with an automatic withdrawl savings plan can help. Check out these posts for great tips and tricks.