- 2.5% probability of failing to meet a return threshold may be acceptable for many clients.
- For normal distribution of returns, the probability of a return that is more than 2 st dev below the mean or expected return is ~2.5%
- So if we subtract 2 st dev from a portfolio’s expected return and the resulting number is above the client’s return threshold, the client may find the resulting portfolio acceptable. If it is below, the portfolio may be unsatisfactory.

**If client is more risk averse, you can choose a larger number for st dev. If client is less risk averse, choose smaller number.**

Why is the bolded part true? This is from the book. If client is more risk averse, shouldn’t you want to choose a smaller number for st dev? You want there to be less chance of a negative return, and smaller volatility.