Target return and target volatility represent the capital market assumptions for your model. They reflect the projected return and level of volatility expected over the next 3–5 years.
In simple terms, these values define the performance expectations you are setting for your clients.
If you have a reliable source for projections, you may use it. If not, the Andes Risk platform provides helpful data points to assist you in setting appropriate target return and volatility values for your model.
Andes Risk Platform Risk Bands
If your model name includes terms such as Conservative, Moderate, Growth, or Aggressive, refer to the Andes Risk Bands below to ensure alignment.
For example, if a model is labeled Aggressive but has a target volatility of 12.8, the Risk Tolerance Test will classify it as Growth based on the risk bands, creating a mismatch with the model name.
To maintain consistency, an Aggressive model should typically have a target volatility between 15 and 18. If you have questions or differing perspectives, please reach out to your contact at Andes Risk.
Andes Risk Band
| Risk Band | Risk Score Range | Volatility Range: Lower | Volatility Range: Upper |
| Conservative | 0 - 20 | 0 | 4 |
| Moderate Conservative | 20.01 - 40 | 4.01 | 8 |
| Moderate | 40.01 - 60 | 8.01 | 12 |
| Moderate Aggressive | 60.01 - 80 | 12.01 | 16 |
| Aggressive | 80.01 - 100 | 16.01 | 20 |
| Aggressive Plus | > 100 | 20.01 | 1000 |
Target Return and Volatility for System Models
The Andes Risk platform offers two sets of system models. Below are the corresponding target return and volatility values for your reference.
Classic Model Set
This model set consists of four asset classes: U.S. Equity (represented by SPY), Global Equity (ACWX), Bonds (BND), and Short-Term (SHV). The target return and volatility for each model are based on historical averages from 1999 to 2022.
| Model Name | Model Position Weights (SPY/ACWX/BND/SHV) | Target Return | Target Volatility |
| Classic Conservative 20/80 | 15/5/50/30 | 4.00 | 4.60 |
| Classic 30/70 | 25/5/50/20 | 4.70 | 6.30 |
| Classic 40/60 | 30/10/45/15 | 5.30 | 8.00 |
| Classic Balanced 50/50 | 35/15/40/10 | 5.85 | 10.00 |
| Classic Balanced 60/40 | 40/20/35/5 | 6.30 | 11.90 |
| Classic Growth 70/30 | 50/20/25/5 | 6.80 | 14.00 |
| Classic Aggressive 85/15 | 60/25/15/0 | 7.50 | 17.00 |
| Classic Aggressive Plus 100/0 | 70/30/0/0 | 8.00 | 20.20 |
Classic U.S. Only Model Set
This model set includes two asset classes: U.S. Equity (represented by SPY) and Bonds (BND). The target return and volatility for each model are based on historical averages from 1986 to 2022.
| Model Name | Model Position Weights (SPY/BND) | Target Return | Target Volatility |
| Classic U.S. Conservative 20/80 | 20/80 | 5.50 | 5.30 |
| Classic U.S. 30/70 | 30/70 | 6.10 | 6.70 |
| Classic U.S. 40/60 | 40/60 | 6.64 | 8.20 |
| Classic U.S. Balanced 50/50 | 50/50 | 7.20 | 9.80 |
| Classic U.S. Balanced 60/40 | 60/40 | 7.67 | 11.50 |
| Classic U.S. Growth 70/30 | 70/30 | 8.10 | 13.40 |
| Classic U.S. Aggressive 80/20 | 80/20 | 8.50 | 15.40 |
| Classic U.S. Aggressive 90/10 | 90/10 | 8.80 | 17.20 |
| Classic U.S. Aggressive Plus 100/0 | 100/0 | 9.12 | 19.20 |
Data Points to Help You Set Target Return and Target Volatility
Target return and target volatility are set using historical averages, with long-term data as the default and specific historical periods used when they better reflect expected future conditions. Volatility should be evaluated across multiple time horizons, including historical worst periods.
When setting the target return, long-term historical returns are a good starting point. If you believe the next 3–5 years may be less favorable, you can adjust the target return downward. In general, slightly revising expectations lower can be a prudent approach to avoid overpromising.
When setting the target volatility, it’s helpful to review shorter-term volatility measures (such as 1-year, 3-year, and 5-year), as well as historical worst-case periods. See below.
Most Recent Time Periods and Best/Worst
After calculating the analytics, navigate to Analytics & Stress Testing → Return/Risk.
Scroll down to view the best and worst time periods.
