1. Field of the Invention
The present invention relates, generally, to the field of investment management and, more particularly, to a system, method, and computer program product for allocating assets among a plurality of investments to guarantee a predetermined value at the end of a predetermined time period.
2. Discussion of the Background
Presently, there is a wide array of investments that investors may use to achieve their investment goals. As is well known in the investment industry, each investment has its own advantages and disadvantages, including an associated anticipated rate of return and risk. Typically, an investment with a high anticipated rate of return also has a high risk of depreciating. For example, while some stocks may provide very high rates of return, they also involve substantial risk that the investor could lose part or all of the initial investment. Well-known examples of high risk investments include stocks (especially technology stocks) and mutual funds (especially growth-oriented funds). Conversely, an investment that is low risk, typically has an anticipated rate of return that is relatively low. Examples of lower risk investments include insured savings accounts, Certificate of Deposits (CDs), government backed bonds, and money market accounts.
Traditionally, investors have had to choose between a higher rate of return (selecting a high yield, high risk investment) and safety of principal (selecting a low risk, low yield investment). In seeking a moderately high rate of return while attempting to protect against significant downturns in the market, investors often diversify—allocating their assets among higher risk, higher yield investments (hereinafter referred to as “high yield investments”) and lower risk, lower yield investments (hereinafter referred to as “low risk investments”). The investor's assets are allocated between the high yield and low risk investments according to the investor's risk tolerance and investment goals.
While diversifying in this fashion may lower the risk of significant downturns in the value of the investment portfolio, it also tends to reduce the potential for appreciation. Diversification tends to lower the downside risk by reducing the depreciation that may result in the total value of the investor's assets if the high yield investment yields a negative return (i.e., experiences a reduction in value). However, diversifying can also result in limited potential for appreciation. Specifically, if the high yield investment produces a high rate of return on the assets allocated therein—as is anticipated and intended—the increase in the overall value of the investor's assets will be diminished by the relatively low increase in value of the low risk investment. For example, if half of an investor's assets are allocated to a high yield investment that yields a fifty percent rate of return, and the other half of the investor's assets are allocated to a low risk investment that yields a zero percent return, the overall rate of return on the investor's assets will be twenty-five percent. Thus, while diversifying may increase the overall security of the investor's investment portfolio, diversifying may also reduce the overall rate of return.
Financial institutions have also created various investment vehicles designed to reduce or eliminate risk, while minimizing the performance dampening effect of the diversification. However, these vehicles typically place restrictions on the investment and/or investor and also include other undesirable features.
Zero coupon instruments, certificates of deposit, guaranteed investment contracts and variations on these types of instruments comprise one type of such an investment vehicle. With this type of instrument, a financial institution guarantees that if the principal contribution is maintained without withdrawals or transfers until the specified date, the investment will be worth a predetermined value at the end of the period. The financial institution invests a pool of investments standing behind the obligations to every investor, be it individuals or institutions, as it sees fit, subject to applicable regulatory standards, to support its guarantee. Typically, these types of investment do not yield greater returns than the predetermined value at the end of the predetermined time period and are often a fixed rate investment. In addition, the investor usually has no say in the selection of investments and, once the assets are allocated, the investor has no control to reallocate them.
Individualized guaranteed portfolios are another type of such program. With this type of instrument, a financial institution negotiates with an investor—generally an institutional investor—over the range of investments that may be used in a portfolio underlying a guarantee of some predetermined value at the end of the predetermined period. In such a negotiation, the predetermined value and the length of the period, as well as the ratings of the issuers of the underlying securities, may all be part of the negotiation. If the predetermined value is not accumulated at the end of the predetermined time period, the financial institution supplies the shortfall. However, the financial institution taking on the guarantee then maintains control over the investment of the portfolio once the period begins, within the parameters set out in the negotiation. Thus, the investor has limited selection of investments and, once the assets are allocated, the investor has no control to reallocate them.
A guaranteed return pooled investment is still another type of such program. These instruments generally are offered by investment companies, and typically comprise a particular investment such as a mutual fund with a limited “offering period” (the period within which an investment must be made) and a set calendar date, which is the date the pre-determined value is guaranteed for each shareholder. The investor has no control over the selection of investments and once the assets are allocated, the investor has no control to reallocate them. In summary, the prior art products impose restrictions on the investments available for initial allocations, restrict or prohibit reallocations, and often have a relatively low anticipated rate of return.
Therefore, notwithstanding the available investment diversification products, there is a need for a system, method, and computer program product for allocating assets among a plurality of investments that, unlike such conventional diversification products: (1) guarantees a predetermined value or rate of return on an investment at the end of a predetermined time period; (2) has a guaranteed rate of return over a predetermined time period, without the reduction in the appreciation normally associated with diversification; (3) allows for diversification between a Secure Account and a Variable Account to guarantee a predetermined value at the end of a predetermined time period and to increase the investor's overall security of the portfolio; (4) provides significant investment control to the investor with flexibility in the type of investments available to the investor throughout the time period of the investment; and (5) does not have a fixed asset allocation requirement.