Simple Investing Risk/Return Games
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
These games will help you to visualise the consequences of your asset allocation decisions.

UKSA does not have the resources to develop these games, but in concept they are quite simple. The material already exists with any of the major investment advisers to pension funds. They have developed these techniques to help trustees chose investment strategies - which is exactly what is wanted here, but with different levels of sophisitication geared to different target audiences.

The idea is to help the saver develop an understanding of the risk consequences of his investment plan, and an understanding of his own feelings were 'bad things' to happen, and therefore an insight into his risk preferences. Technical stuff follows.

It is possible to simulate the results of investing over time in particular asset classes allocated in particular proportions. The base data is the probability distribution of annual returns and the covariances of each pair of asset classes. Monte Carlo methods are used to simulate the results of any investment strategy and can be presented in many different non-technical and/or visual ways. For example:

  • the player can follow the year by year results, playing one year at a time
  • the player can see how often he beats all-cash over different periods
  • the player can see the probability of specific events (e.g. losing more than X%)
  • by allowing the player to make changes dependent on annual outcomes, (for example, increasing savings rates when cumulative perormance falls below a threshold) a game can allow the player to learn whether he can cope with the worst outcomes of his investment strategy.

 

Learn about 'Return' now:  

 

 

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