What would be the MAR (min acceptable ret) here-
" I would prefer that the portfolio not lose more than 3%of its value in any year. Since my bank account is earning only 2% , however i realize that my portfolio may require some risk exposure"
I would say 3%, as she/he is approaching the manager with the mindset of, at minimum, maintaining the purchasing power of her portfolio, which is a direct reference to her return objective. The 2% is simply referencing the investor’s realization that she would be unable to earn 3% on the risk free rate, its a statement reflecting the acceptance of risk , not a statement referencing a return objective.
Looking at a contrarian opinion, you could make the case that since 3% is “desired” it doesn’t have to be achieved. Therefore, the minimum return would have to be 2% in order for there to be a benefit for taking risk instead of just investing via a bank deposit.
I still stick with my first opinion, curious to see what others think.
-3%. It would be 3% if she said I need to make at least 3%. Here she says I need to not lose more than 3%.
but she “prefers” that. and the next statement says she realised she needs risk exposure. seems confusing to me.
Looking back at it, I do agree. I misconstrued value as relative purchasing power.
By accepting risk exposure, I believe it is implied that she realizes she won’t always be able to make a positive return, just as long as the risk is limited to -3% she is comfortable.