Modern Portfolio Theory
In 1990, the Nobel Prize for Economics was awarded to three noted financial economists for their work in developing Modern Portfolio Theory (MPT) as a portfolio management technique. According to MPT, investors are inherently risk averse – not willing to accept risk unless the potential returns generated sufficiently make up for taking these risks. In addition, MPT shifts the focus away from individual security analysis toward the efficient allocation of capital across specific asset classes. At Gemmer, we use these concepts to help our advisors design their client portfolios and manage their accounts.
Why Does Asset Allocation Matter?
Simply defined, asset allocation is the act of spreading investment dollars over a number of investment vehicles – diversifying those dollars – to obtain the best possible risk/reward trade-off that will have a lasting impact over time. Investment vehicles fall into four general categories, which are the pillars on which all portfolios are built:
How do we construct your clients’ portfolios? Read about our two stage approach: Tactical Asset Class Shifts and Manager/ETF Selection.