i3 Passive plan white paper

Passive plan investment strategies are based upon passive portfolio management. We accept the Efficient Market Hypothesis, which states that current prices reflect all information on the stock market. We don’t attempt to predict future stock prices. We construct portfolios based on historical returns for evaluating market average return and portfolio risks. We do our best to minimize management and transaction costs to greatly maximize our customers’ real return.

In order to fulfill the needs of our customers and their varied risk tolerances, we chose the following asset classes: global equity market, global bond market, cash and equivalent market, real estate markets among others. Our portfolio advice for specific customers follows the principles listed below:

  1. In order to represent the market and reduce management fees we advise investing through an ETF.
  2. We also offer other ETFs that could represent asset classes for our clients to choose from. Those ETFs we offer must meet the following criteria: low management fees, passive investment and lengthy tracking records.
  3. Most methodologies evaluating client risk tolerance rely on questionnaires. This involves posing many questions to place a customer in an ideal risk tolerance class. But we think questionnaires can also further complicate, along with errant human judgement to decide a customer’s risk tolerance. As a result, there are biases to the actual risk that customers can afford. On the other hand, we ask for a single number – annual acceptable losses – to evaluate our customers’ risk tolerance.
  4. Based on the annual acceptable losses, historical returns and the correlation between markets, we calculate the optimized allocation portfolio for our customers. The target portfolio meets the following criteria – annual return has a 95% probability to exceed annual acceptable losses and also aims to maximize the average return. Generally speaking, we advise for our customers’ portfolios to not exceed their acceptable losses while maximizing their return.
  5. Passive portfolio strategy cannot be altered frequently. It should have stable market allocations. The goal with a passive portfolio is to accumulate assets as time goes by, minimizing transaction costs, and pursuing long term growth. We review and adjust the asset classes, market returns, and market correlations once a year.

Besides our passive plan, you can make your own portfolio allocation and let i3 do the rest, including portfolio management, rebalance alerts and buy/sell shares.

Link to i3 Optimal Asset Allocation feature

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