Modern portfolio theory is built on this concept of diversification in order to reduce risk. Assets move from stocks to bonds, from domestic markets to international markets, from large companies to small companies, from one industry sector to another, and back again. This perpetual movement is largely driven by constantly changing economic, social and political events.
Just like the elevator, when one investment sector “breaks”, you want to have other sectors that keep your portfolio from crashing. When I design portfolios, or when I hire top institutional investors to help manage my clients' money, we utilize a variety of computer optimized models to reach a balance between risk and reward in order to keep client portfolios on an even keel.
Behavioral research has shown over and over again that people feel the pain of monetary loss much more acutely than the glee of gain. Understanding my clients' risk tolerance and building portfolios with risk management in mind are two key tenants of my investment process. Back >>