top of page

Are we clinging to failed strategies? – CBS News

Writer: Steve MartinSteve Martin

(MoneyWatch) Financial Advisor magazine highlights a report admonishing advisors who thought diversification would save their clients’ portfolios from difficult markets. Unfortunately, this represents a misunderstanding of the way financial markets work.

The report, by New Jersey investment firm Risk 3.0 Asset Management, said that “advisors have not understood the impact of what can only be seen as a historic and seismic shift in global financial markets and what that means for their clients and their business.” It also called out advisors for their views on diversification, saying “they still think that diversification is the answer and is going to save them, even though diversification didn’t save anybody in 2008.”

The root of the problem is that the report’s author doesn’t understand modern portfolio theory very well. Here’s a quick breakdown of the four major components of MPT:

Markets are too efficient for active managers to consistently exploit them for profit

Over the long term, asset classes typically provide returns according to their levels of risk

Diversification can increase returns or reduce risk (In some cases, it can actually do both)

There’s no perfect portfolio; there is only a portfolio that is suited for an investor’s given level of risk and expected returns.

 
 
 

Recent Posts

See All

Avoid The Recency Pitfall

Larry Swedroe does a great job of talking about the importance of re-balancing.  Steve ============================================= Last...

Kommentare


Purposeful Financial and Legacy Planning

Fee-Only Financial Planning

(970) 443-1873

3400 Rosestone Ct, Fort Collins, CO 80525

  • Facebook
  • Twitter
  • LinkedIn

©2020 by Purposeful Financial and Legacy Planning

DISCLAIMER: This website is for informational purposes only and does not constitute a complete description of our investment services or performance. This website is in no way a solicitation or offer to sell securities or investment advisory services except, where applicable, in states where we are registered or where an exemption or exclusion from such registration exists. Information throughout this site, whether stock quotes, charts, articles, or any other statement or statements regarding market or other financial information, is obtained from sources which we, and our suppliers believe reliable, but we do not warrant or guarantee the timeliness or accuracy of this information. Nothing on this website should be interpreted to state or imply that past results are an indication of future performance. THERE ARE NO WARRANTIES, EXPRESSED OR IMPLIED, AS TO ACCURACY, COMPLETENESS, OR RESULTS OBTAINED FROM ANY INFORMATION POSTED ON THIS OR ANY 'LINKED' WEBSITE.

All domestic and international rights reserved. No part of this website, including text, graphics, et al., may be reproduced or copied in any format, electronic, print, et al., without written consent.

Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™ and CERTIFIED FINANCIAL PLANNER in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.

bottom of page