90/10 Strategy

AAA

DEFINITION of '90/10 Strategy'

An investing strategy that involves deploying 90% of one's investment capital in interest-bearing instruments that have a lower degree of risk, and the balance 10% in high-risk investments. This is a relatively conservative investment strategy that aims to generate higher yields on the overall portfolio. Potential losses will typically be limited to the 10% that is invested in the high-risk investments, depending on the quality of bonds purchased.

INVESTOPEDIA EXPLAINS '90/10 Strategy'

A common application of the 90/10 strategy involves the use of short-term Treasury Bills for the fixed-income component (90% of the portfolio), with the balance 10% used for higher risk securities such as equity or index options or warrants.


For example, assume an investor with a $100,000 portfolio uses the 90/10 strategy. He or she invests $90,000 in one-year Treasury Bills that yield 4% per annum, with the balance $10,000 deployed in equity in the S&P 500. If the S&P 500 returns 10% at the end of one year, the overall return on the portfolio would be 4.6% (0.90 x 4% + 0.10 x 10%). However, if the S&P 500 declines by 10%, the overall return on the portfolio after one year would be 2.6% (0.90 x 4% + 0.10 x -10%).

RELATED TERMS
  1. Call Option

    An agreement that gives an investor the right (but not the obligation) ...
  2. Index Option

    A financial derivative that gives the holder the right, but not ...
  3. Warrant

    A derivative security that gives the holder the right to purchase ...
  4. Treasury Bill - T-Bill

    A short-term debt obligation backed by the U.S. government with ...
  5. Risk

    The chance that an investment's actual return will be different ...
  6. Net Line

    The amount of risk that an insurance company retains after subtracting ...
RELATED FAQS
  1. Does index trading increase market vulnerability?

    The rise of index trading may increase the overall vulnerability of the stock market due to increased correlations between ... Read Full Answer >>
  2. When does the holding period on a stock dividend start?

    The holding period on a stock dividend typically begins the day after it is purchased. Understanding the holding period is ... Read Full Answer >>
  3. What does a high turnover ratio signify for an investment fund?

    If an investment fund has a high turnover ratio, it indicates it replaces most or all of its holdings over a one-year period. ... Read Full Answer >>
  4. How does a forward contract differ from a call option?

    Forward contracts and call options are different financial instruments that allow two parties to purchase or sell assets ... Read Full Answer >>
  5. What is the difference between passive and active asset management?

    Asset management utilizes two main investment strategies that can be used to generate returns: active asset management and ... Read Full Answer >>
  6. How can I use the holding period return yield to determine whether or not I should ...

    Use the holding period return yield formula to determine whether the time is right to sell your bond. With this calculation, ... Read Full Answer >>
Related Articles
  1. Investing Basics

    Achieving Optimal Asset Allocation

    Minimizing risk while maximizing return is any investor's prime goal. The right mix of securities is the key to achieving your optimal asset allocation.
  2. Mutual Funds & ETFs

    4 Steps To Building A Profitable Portfolio

    This is a step-by-step approach to determining, achieving and maintaining optimal asset allocation.
  3. Investing Basics

    How To Be A Conservative Investor

    It may not be the most exciting path to take in the investing world, but conservative investing is an extremely safe bet.
  4. Options & Futures

    An Alternative Covered Call Options Trading Strategy

    This different approach to the covered-call write offers less risk and greater potential profit.
  5. Trading Strategies

    Adjust Market Strategies To Elevated Risk

    Improve returns by adapting trading strategies to changing market conditions.
  6. Trading Strategies

    Pros And Cons Of Paper Trading

    Most market novices should paper trade for a considerable amount of time, despite key drawbacks.
  7. Options & Futures

    Understanding Bull Spread Option Strategies

    Bull spread option strategies, such as a bull call spread strategy, are hedging strategies for traders to take a bullish view while reducing risk.
  8. Professionals

    Are These the 10 Best Stocks in the World?

    Most of the top 10 stocks in the world have performed exceptionally well over the past several years. Here's a look at their future prospects.
  9. Stock Analysis

    Invest Here Now: The Hottest Sectors of 2014-15

    These 10 industries have made investors a lot of money over the past year. Is there still room to run?
  10. Professionals

    What Does an Ideal Retirement Portfolio Look Like?

    The "ideal" portfolio can differ from one investor to another depending on many factors, but some themes hold true no matter what.

You May Also Like

Hot Definitions
  1. Nuncupative Will

    A verbal will that must have two witnesses and can only deal with the distribution of personal property. A nuncupative will ...
  2. OsMA

    An abbreviation for Oscillator - Moving Average. OsMA is used in technical analysis to represent the variance between an ...
  3. Investopedia

    One of the best-known sources of financial information on the internet. Investopedia is a resource for investors, consumers ...
  4. Unfair Claims Practice

    The improper avoidance of a claim by an insurer or an attempt to reduce the size of the claim. By engaging in unfair claims ...
  5. Killer Bees

    An individual or firm that helps a company fend off a takeover attempt. A killer bee uses defensive strategies to keep an ...
  6. Sin Tax

    A state-sponsored tax that is added to products or services that are seen as vices, such as alcohol, tobacco and gambling. ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!