The “Guaranteed” Portfolio

How much belongs in the risk-free part so its interest covers even a total loss of the equity part – and how much upside is left

CZK
years
% p.a.
Bond held to maturity, savings product, repo
% p.a.
Long-term average of the broad market
%
100% = the equity part loses everything
% of deposit
100% = nominal break-even, you lose nothing
Risk-free part
–
–
Equity part
–
–
Worst case
–
–
Expected value
–
–
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Portfolio allocation

Portfolio value over time

In the worst case equities crash right at the start and never recover – interest on the risk-free part gradually makes the loss up to the guaranteed level.

End value by equity performance

The price of protection is less participation in the upside: the portfolio never falls below the guaranteed floor, but it grows far more slowly than 100% equities.

Scenarios in numbers

Scenario Equities over horizon End value Total return Return p.a. In today’s money
The last column restates the end value in today’s purchasing power, assuming long-term inflation of 2.5% p.a.

How the horizon changes the split

The longer the horizon, the more work the interest does – and the larger the share you can put into equities at the same guarantee.

How it is calculated

The portfolio is split in two. By the end of the horizon the risk-free part must grow enough to cover the guaranteed level on its own, even if the equity part ends at zero.

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With a 100% worst-case drop this is plain discounting: you put into the risk-free part exactly what future certainty costs today, and the rest is a risk budget you can afford to lose in full.

Why “guaranteed” is in quotation marks

  • Credit risk. The guarantee holds only as far as the risk-free part really is risk-free – the bond issuer or the bank has to honour its obligations.
  • Holding to maturity. The model assumes you hold the risk-free part for the whole horizon. Sell earlier and the market price decides – and that moves with interest rates.
  • Inflation. Nominal break-even is not real break-even. At 2.5% inflation a “guaranteed” million has the purchasing power of roughly 884,000 after five years – a real guarantee requires a higher guaranteed level.
  • Taxes. The model uses gross returns. Coupons and interest are usually taxed; for securities the Czech three-year holding test may help – the actual impact depends on the structure.
  • Lump sum. The model assumes a single deposit at the start and no reshuffling along the way. Regular investing or rebalancing changes the result.
A guarantee lives and dies by how the portfolio is built. The calculator shows the principle, but the specific bond, the rate fixation, taxes and liquidity decide how well it works in practice. I will gladly build the portfolio with you.
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