90/10 Strategy

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.

BREAKING DOWN '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. Balanced Investment Strategy

    A portfolio allocation and management method aimed at balancing ...
  2. Portfolio Investment

    A holding of an asset in a portfolio. A portfolio investment ...
  3. Conservative Growth

    An investment strategy that aims to grow invested capital over ...
  4. Aggressive Investment Strategy

    A portfolio management strategy that attempts to maximize returns ...
  5. Conservative Investing

    An investing strategy that seeks to preserve an investment portfolio's ...
  6. Portfolio Return

    The monetary return experienced by a holder of a portfolio. Portfolio ...
Related Articles
  1. Trading

    Adding Alpha Without Adding Risk

    Learn how to generate higher returns in your portfolio while keeping the same risk profile.
  2. Investing

    How To Construct A High-Risk Portfolio

    Over time, intelligent and disciplined risk-seeking behavior can produce substantially above-average returns.
  3. Managing Wealth

    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.
  4. Managing Wealth

    Understanding Portfolio Investment

    Portfolio investment involves buying securities with the expectation of earning a return on them.
  5. Retirement

    Is Buffett's 90/10 Asset Allocation Sound?

    Warren Buffett made waves when he said 90% of his wife's bequest would go toward stocks. Is it a good idea for typical investors to follow this same rule?
  6. Managing Wealth

    Concentrated Vs. Diversified Portfolios: Comparing the Pros and Cons

    Examine the relative advantages and disadvantages of utilizing either a concentrated or a diversified investment portfolio strategy.
  7. Managing Wealth

    The Workings Of Equity Portfolio Management

    Achieve analytical efficiency by applying your evaluation to a key set of stocks.
  8. Investing

    Money Management: 4 Things to Consider Before Trading Riskier Securities

    Learn about factors that every investor should consider before purchasing any risky security. Find out why suitability, liquidity and expertise are important.
  9. Managing Wealth

    In Praise Of Portfolio Simplicity

    Find out how you can streamline your investments for greater returns.
  10. Managing Wealth

    Yield vs. Total Return: How They Differ

    Understanding yield vs. total return is essential in constructing portfolios that meet income generating needs while providing growth for the future.
RELATED FAQS
  1. Are Vanguard target retirement plans 2050 worth investing into?

    I understand 90% are invested into stock market and 10% in bonds.    ... Read Answer >>
  2. Are short-term investments a good strategy for cash-rich small businesses"?

    Learn more about investment choices available to small businesses and whether short-term investing is a smart choice for ... Read Answer >>
  3. What is the difference between a sharpe ratio and an information ratio?

    Understand the meaning of the Sharpe ratio and the information ratio, and understand how they differ as tools for evaluating ... Read Answer >>
  4. What proportion of my overall investments should be in securities?

    Understand the various factors that should be considered by individuals in regard to investment portfolio management and ... Read Answer >>
  5. Is there a positive correlation between risk and return?

    Learn about the positive correlation between risk and the potential for return, and understand how risk is used to construct ... Read Answer >>
  6. What is the difference between passive and active portfolio management?

    Understand the difference between active portfolio management and passive portfolio management, and how each strategy benefits ... Read Answer >>
Hot Definitions
  1. AAA

    The highest possible rating assigned to the bonds of an issuer by credit rating agencies. An issuer that is rated AAA has ...
  2. GBP

    The abbreviation for the British pound sterling, the official currency of the United Kingdom, the British Overseas Territories ...
  3. Diversification

    A risk management technique that mixes a wide variety of investments within a portfolio. The rationale behind this technique ...
  4. European Union - EU

    A group of European countries that participates in the world economy as one economic unit and operates under one official ...
  5. Sell-Off

    The rapid selling of securities, such as stocks, bonds and commodities. The increase in supply leads to a decline in the ...
  6. Brazil, Russia, India And China - BRIC

    An acronym for the economies of Brazil, Russia, India and China combined. It has been speculated that by 2050 these four ...
Trading Center