Questions and answers

What is the difference between the tailored life-cycle investment and the one where I chose my level of risk, since both actually use the same portfolio components?

When you chose the life-cycle option, you will be asked a certain set of personal characteristics, all of which will be used in a model-based optimization procedure. The resulting asset allocation advice assigns you a tailored risk-return profile. It will also allow you to benchmark your current behavior to a model optimum and have some insight into sustainability of your financial decisions.

When opting for the simpler allocation tool, you chose the adequate risk-return profile yourself in order to get an estimate of the statistical probability of reaching a set target goal. This will not allow you to check the sustainability of your actions in a broader sense.

The model generated wealth path indicates that I should be accumulating a multiple of my yearly income (over 10 times) by the end of my working life. Is that reasonable?

Yes, indeed it is quite a large amount of suggested savings, but the result seems right. Please keep in mind that the model assumes you will have no other source of income during your retirement than those provided by your accumulated wealth. Since, many users will actually have some type of expected recurrent retirement income, it is important at a second step to complete your full profile and expected payment flows, only then you will get a good picture of what you will have to save effectively in order to guarantee yourself a broadly smooth consumption level throughout your life.

Shouldn’t I focus my investments in my home country? Why do I spread out globally this much?

Having the broadest possible diversification of risk across regions and asset classes is the most useful investment strategy since it provides better protection against individual shocks to an asset class or country. As a matter of fact, in case your labor income is correlated to the securities markets in your home country, it would be useful to underweight the investments in your home country. This would at least partially protect you from a potential double shock – loss of job and drop in your financial assets.