You’ve heard of the theory of relativity. Just a hunch, of course. How about model portfolio theory? And how does it work?
Well, it abets the ability of investors to tamp down on market risk and wring the most out of return, according to forbes.com.
On one hand, investors can erect optimized portfolios with modern portfolio theory, on the other, however, are there limitations? Yep.
For example, estimates – all of them – stem from historical data that might have nothing to do with current or markets down the road.
The “perfect investment” can be a tough nut to crack.
That said, modern portfolio theory’s been highly popular, according to Investopedia.com.
It’s contended by modern portfolio theory that, possibly, an ideal portfolio that hands investors maximum returns by tacking the optimal amount of risk, can be designed.
When it comes to diversifying securities and asset classes – on top of the benefits of stopping short of putting your eggs in the old basket -- MPT’s a big supporter.