Method and apparatus for diversifying investment based on risk tolerance

• US 20030120576A1
• Filed: 11/25/2002
• Published: 06/26/2003
• Est. Priority Date: 12/21/2001
• Status: Abandoned Application

• Current Assignee: Efficient Portfolios LLC
• Original Assignee: Efficient Portfolios LLC
• Inventors: Duckworth, Frank A.
• Application Number:
  US10/303,065
• Publication Number:
  US 20030120576A1
• Time in Patent Office: Days
• US Class Current: 705/36
• CPC Class Codes: G06Q 40/06 Asset management; Financial planning or analysis
• CPC Class Codes: G06Q 40/08 Insurance

Abstract

A system and method of asset allocation for optimizing investment determines risk tolerance category of the user based on answers to a risk tolerance questionnaire. A value is calculated based on the way the questions are answered and various points assigned to each answer. The calculated value, which correlates to a standard deviation range, and a risk type for that specific value is assigned to the user. According to a predetermined asset allocation table, different asset classes are determined and along with the standard deviation range are plotted on the efficient frontier. The user selects various risk levels and finds various combinations of asset classes. The precise composition of the asset allocation is determined based on the assigned value, corresponding risk type and related asset classes.

Claims

1. A computer-implemented asset allocation system for optimizing investment, comprising:

a risk tolerance questionnaire containing at least one question that determines a level of risk a user accepts based on answers provided to the questionnaire; and

a processor configured for calculating a value based on the answers and assigning the calculated value to the user;

assigning a risk type to the user based on the calculated value;

correlating the risk type to a specific asset allocation plan that includes at least one asset group;

determining a composition of asset classes, that has optimized return for a specific level of risk; and

identifying changes to an original portfolio according to the determined composition.

5. A computer-implemented method of asset allocation for optimizing investment as in claim 1, wherein the step of calculating the value further comprises:

assigning points to each answer;

providing a weighted factor to each question; and

determining a value based on the summation of the weighted points.

2. A computer-implemented asset allocation system for optimizing investment, comprising:

at least one question that determines a level of risk a user accepts; and

a processor configured for identifying a level of risk tolerance based on answers to at least one question by a user; and

determining a composition of asset classes, that has optimized return for a specific level of risk based on a risk type obtained from the level of risk tolerance; and

identifying changes to an original portfolio according to the determined composition.

3. A machine-readable data storage medium encoded with a set of machine-executable instructions for using a data processing system to perform a method of asset allocation for optimizing investment, said method comprising the steps of:

determining a level of risk for a user based on answers provided to a risk tolerance questionnaire containing at least one question;

calculating a value based on the answers and assigning the calculated value to the user;

assigning a risk type to the user based on the calculated value;

determining an asset allocation plan including at least one asset group and a composition of asset classes in each asset group based on the risk type and optimized return for a specific level of risk.

4. A computer-implemented method of asset allocation for optimizing investment, said method comprising the steps of:

determining a level of risk for a user based on answers provided to a risk tolerance questionnaire containing at least one question;

calculating a value based on the answers and assigning the calculated value to the user;

assigning a risk type to the user based on the calculated value;

correlating the risk type to a specific asset allocation plan that includes at least one asset group;

determining a composition of asset classes in each asset group based on the risk type and an optimized return for a specific level of risk.

6. A computer system comprising:

at least one source that provides risk tolerance data;

a processor that receives and processes risk tolerance data to determine a value, a risk type and a corresponding asset allocation plan according to a software algorithm and at least one predetermined table; and

at least one user interface that provides interactive graphics for determining optimized combination of asset classes for asset allocation,

whereby a composition of the asset allocation plan is determined based on the risk tolerance data and asset classes.

7. An asset allocation computer system implemented over a network for optimizing investment comprising:

a network;

at least one user interface connected to said network;

a risk tolerance questionnaire that determines a level of risk a user accepts based on answers provided to the questionnaire containing at least one question; and

at least one processor connected to said network that calculates a value based on the answers and assigns the calculated value to the user according to at least one predetermined table, correlates the risk type to a specific asset allocation plan that includes at least one asset group, determines a composition of asset classes for an optimized return for a specific level of risk and identifies changes to an original portfolio according to the determined composition.

8. Computer-readable instructions for delivering instructional information embodied in a carrier wave, comprising the steps of:

determining a level of risk for a user based on answers provided to a risk tolerance questionnaire;

calculating a value based on the answers and assigning the calculated value to the user;

assigning a risk type to the user based on the calculated value;

correlating the risk type to a specific asset allocation plan that includes at least one asset group;

determining a composition of asset classes in each asset group based on the risk type and an optimized return for a specific level of risk.