US 2003/0126054 A1Published application

Method and apparatus for optimizing investment portfolio plans for long-term financial plans and goals

OwnerW. Richard Purcell, JR.inventor

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Abstract

The present invention provides information to enable investors to see how portfolio plans comprising pluralities of best-diversified portfolios compare in probabilistic measures of prospects and risks for their long-term financial plans and goals, to enable and educate investors to select and stay on most promising portfolio paths for their long-term plans, goals, and priorities. Users are enabled to indicate asset classes or investment categories to be considered for investment portfolios, specify a long-term financial plan including cash flows to and from a portfolio plan in a plurality of years, and specify desires for a portfolio plan to comprise different portfolios for differently taxed funds and different investment periods of the financial plan as the time horizon shortens. Concepts and methods of Modern Portfolio Theory are applied in combination with the specified desires for pluralities of portfolios in a portfolio plan to determine a series of best-diversified portfolio plans; for the long-term financial plan, with each of the series of best-diversified portfolio plans Monte Carlo simulations are run to develop a probability distribution of final wealth at the end of the time horizon of the financial plan. From these analyses, best-diversified portfolio plans are compared graphically in probabilistic measures of long-term results for the plan, on which measures the portfolio plans will standardly rank and compare differently. From the foregoing, investors can obtain, for plans with realistic pluralities of cash flows and portfolios, information and understanding for judging and selecting portfolio plans that offer best prospects for their long-term goals and priorities and for staying with well-selected portfolio plans in the face of short-term volatilities that would frighten less informed investors off course.

Claims74

Dependent claims

A method that relates to finding best investment portfolio plans for long-term financial plans and goals, comprising:

obtaining information on a plurality of investment categories, information on a financial plan, and information on portfolio plans, said information on a plurality of investment categories including data on return rates per investment period including an expected return rate and a return rate standard deviation for each of said investment categories and a return rate correlation coefficient for each pair of said investment categories;
said information on said financial plan including a time horizon comprising a plurality of investment periods, at least a first investment amount in a portfolio plan in a first investment period in said time horizon, and at least a second investment amount put into or a first withdrawal amount taken from said portfolio plan in a subsequent investment period of said time horizon;
and said information on portfolio plans including information useful for defining a series of portfolio plans in which at least a first portfolio plan in a series comprises a plurality of portfolios, each portfolio being a number of said investment categories in particular unique allocation proportions;
and
providing at least a first comparison of a series of best-diversified portfolio plans with respect to at least a first criterion relative to the final wealth of a portfolio plan, wherein:
each of said best-diversified portfolio plans conforms to said information on portfolio plans and comprises a number of best-diversified portfolios, each of said best-diversified portfolios having an expected return rate and the smallest return rate standard deviation of any portfolio having the same said expected return rate in a population of portfolios each comprising a number of said investment categories;
said final wealth is the value of a portfolio plan at the end of said time horizon using said portfolio plan for said financial plan and has a probability distribution;
and
said first criterion comprises a value for said final wealth and a probability that said final wealth will equal or exceed said value and is determined for a portfolio plan using simulation.

6 more elements

An apparatus that relates to finding best investment portfolio plans for long-term financial plans and goals, comprising:

computer memory for storing information on a plurality of investment categories, information on a financial plan, and information on portfolio plans, said information on a plurality of investment categories including data on return rates per investment period including an expected return rate and a return rate standard deviation for each of said investment categories and a return rate correlation coefficient for each pair of said investment categories;
said information on said financial plan including a time horizon comprising a plurality of investment periods, at least a first investment amount in a portfolio plan in a first investment period in said time horizon, and at least a second investment amount put into or a first withdrawal amount taken from said portfolio plan in a subsequent investment period of said time horizon;
and said information on portfolio plans including information useful for defining a series of portfolio plans in which at least a first portfolio plan in a series comprises a plurality of portfolios, each portfolio being a number of said investment categories in particular unique allocation proportions;
and
at least a first computer processor for providing at least a first comparison of a series of best-diversified portfolio plans with respect to at least a first criterion relative to the final wealth of a portfolio plan, wherein:
each of said best-diversified portfolio plans conforms to said information on portfolio plans and comprises a number of best-diversified portfolios, each of said best-diversified portfolios having an expected return rate and the smallest return rate standard deviation of any portfolio having the same said expected return rate in a population of portfolios each comprising a number of said investment categories;
said final wealth is the value of a portfolio plan at the end of said time horizon using said portfolio plan for said financial plan and has a probability distribution;
and
said first criterion comprises a value for said final wealth and a probability that said final wealth will equal or exceed said value and is determined for a portfolio plan using simulation.

6 more elements

Dependencies are inferred from the claim text.