|Speaking at the Financial Standard Chief Economists Forum in Sydney and Melbourne, Anderson said the 7% target could usually be met back in 2006 with an 8.1% standard deviation via a 60/40 split between either US or global investment-grade bonds and global developed equities.
Ten years later, a far more nuanced approach is required: Anderson's example was a mix of factor-tilted equities (47.5%), index equities (15%), US bonds (17.5%), private equity (10%), emerging market bonds (10%) and high-yield bonds (10%). This portfolio also carried a higher standard deviation of 13.2%.
Anderson noted that "this isn't the only particular way to skin the cat, but what we're trying to find is a strategy that has a better risk-adjusted return. But what we've found that is in generating that standard 7% return, which once had an 8% standard deviation for your portfolio, now has a 13% standard deviation."
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