Search Investopedia

90/10 Strategy

Filed Under » , ,
Dictionary Says

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 Says

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 Definitions

  •

    Call Option

    An agreement that gives an investor the right (but not the obligation) to buy a stock, bond, commodity, or other instrument at a specified price within a specific time period.
    Read More »

  • Index Option

    A financial derivative that gives the holder the right, but not the obligation, to buy or sell a basket of stocks, such as the S&P 500, at an agreed-upon price and before a certain date. ...
    Read More »

  • Warrant

    A derivative security that gives the holder the right to purchase securities (usually equity) from the issuer at a specific price within a certain time frame. Warrants are often included ...
    Read More »

    • Treasury Bill - T-Bill

      A short-term debt obligation backed by the U.S. government with a maturity of less than one year. T-bills are sold in denominations of $1,000 up to a maximum purchase of $5 million and ...
      Read More »

    • Risk

      The chance that an investment's actual return will be different than expected. Risk includes the possibility of losing some or all of the original investment. Different versions of risk ...
      Read More »

Articles Of Interest

Sponsored links
Hot Definitions
Partner Links
Suggested Definitions