Asset Allocation Loss Ratio (AALR) – What Is It & How Does It Help You?

Asset Allocation Loss Ratio (AALR) – What Is It & How Does It Help You?

When you go to any investment firm in Canada, they require you to sign a risk tolerance questionnaire to prevent you from investing too aggressively.

However there are two important questions:

1. What prevents you from investing too conservatively?

2. Can you achieve your life goals with more conservative investments?

These are critical questions, since almost nobody can retire comfortably with a typical balanced portfolio with 40-50% in bonds.

This is where the AALR comes in. With any financial decision, it's important to understand how it affects your life – both the risk & the return.

The Asset Allocation Loss Ratio (AALR) estimates the effect of a more conservative portfolio or suboptimal asset allocation on your long-term investment returns.

In my latest podcast episode I give you examples of case studies, as well as the formula for asset allocation loss ratio, so you can determine exactly how you should invest for your future.