Author - David John Marotta

1
What Is The Sharpe Ratio?
2
What Is A “Risk-Free” Guaranteed Investment Return?
3
Did Obamacare Impoverish Employee’s Retirement Benefits?
4
Navigating Your Employer Retirement Plan Fund Choices

What Is The Sharpe Ratio?

The “excess return” is the expected return of an investment minus the expected return of a so-called risk-free, guaranteed investment return.

For example, if you expect an investment or a portfolio to have a mean return of 9% and a standard deviation of 12% in an environment where a so-called risk-free, guaranteed investment has a return of 3%, that investment or portfolio’s Sharpe Ratio would be 0.5. The calculation is simply (9% – 3%) / 12%.

The Sharpe ratio is a quick measure that tries to answer the question, “Am I getting enough extra return for my extra risk?”

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What Is A “Risk-Free” Guaranteed Investment Return?

The Sharpe Ratio uses in its formula the return of a so-called risk-free, guaranteed investment. But what is a so-called risk-free, guaranteed investment and how would you calculate its investment return?

It is worth acknowledging that there is no such thing as a risk-free investment. Everything has risks, even cash.

What is generally used as a proxy for the return of a risk-free, guaranteed investment is the current return of the 3-Month (90 or 91 day) Treasury Bill.

The return of the 3-Month Treasury Bill has been as high as 16.30% (in May, 1981) and as low as 0.01% …

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Did Obamacare Impoverish Employee’s Retirement Benefits?

In an interesting article, Seeking Alpha’s Senior Editor Gil Weinreich comments on a report about the unintended consequences of Obamacare on Employer Retirement Benefits:

According to [a study from Willis Towers Watson] WTW’s data, total employer retirement contributions (weighted by employer size) have fallen from 9.1% of employee pay in 2001 to 6.8% in 2015. That’s a reduction of about 25%!

And lest you say that employers have grown stingier – despite reported corporate earnings soaring during the period – the WTW report shows that total employer benefits increased from 14.8% per employee to 18.3% during the period, an increase

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Navigating Your Employer Retirement Plan Fund Choices

Probably the most common mistake made by employees is to allocate an equal amount of money to each of the fund choices. Studies have shown that given ten choices, employees tend to put 10% in each choice. Given five choices they put 20% in each choice. However, doing this means that if four of the choices represent one type of asset and the fifth is unique, their so-called balanced asset allocation is actually split 80/20. If the funds happen to be the other way around, then the asset allocation is 20/80.

The equal proportions methodology builds very poor portfolios. You …

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