Tag Archives: Modern Portfolio Theory


Choosing Asset Classes Is Another Form of Market Timing

Any reader of our blog will know that we are not fans of market timing. As our CIO Burt Malkiel is fond of pointing out, research consistently proves it’s almost impossible to outperform the market by attempting to time it. Burt has won great acclaim since he first wrote about this phenomenon 40 years ago in A Random Walk Down Wall Street. The lessons of 40 years ago are just as appropriate today, which is why the book is still a best seller and soon to be released in its 11th edition. We have written about many ways to time the market on this blog — choosing individual securities, investing in individual real estate properties, timing when to withdraw from […]

The Challenge: How To Benchmark Your Investment Portfolio

One of the biggest challenges you face as an investor is determining how well you’re performing. Sure it might be nice to see your portfolio is “up 12%,” for example, but how do you know you couldn’t have done better? The primary solution to this problem is to create or find a benchmark against which you can evaluate your portfolio’s performance. In theory the benchmark you choose should be appropriate for all your investment managers.  Unfortunately it’s almost impossible to develop one benchmark for all investors. Benchmarks are relatively straightforward when you want to measure the relative performance of a money manager who only invests in one asset class like US stocks or bonds. It gets far trickier when you […]

Do You Need A Private Banker?

A private banker is someone who focuses on the needs of wealthier-than-average clients. Sometimes, he or she works for a private bank within a large institution, like J.P. Morgan Private Banking; other times, his or her institution is a private bank, like U.S. Trust. Private banks used to exclusively serve people with millions of dollars in assets, but in recent years they’ve been broadening their services to appeal to people with somewhat less. After your company has an IPO or is acquired, you might get a knock on the door from a private banker. In this recent Quora post, Wealthfront CEO Andy Rachleff listed the pros and cons of using a private banker. Among the pros: A private banker might […]

Why Critics Of Modern Portfolio Theory Are Wrong

On Saturday, TechCrunch published Is Modern Portfolio Theory Dead? Come On. by Wealthfront advisor Paul Pfleiderer. Professor Pfleiderer, the C.O.G. Miller Distinguished Professor of Finance at the Stanford Graduate School of Business and co-founder of Quantal International, takes on critics of Modern Portfolio Theory in the article. Modern Portfolio Theory (MPT), which won a Nobel Prize in 1990, is the most accepted way to manage a diversified investment portfolio. A small but vocal minority has criticized it for not sufficiently protecting investors’ portfolios during the financial crash. “It’s particularly important that young people at the beginning of their investing careers understand why the sloppy arguments against MPT are so dangerous. With its insights about diversification and controlling risk, MPT provides […]

How To Build An Investment Portfolio With ETFs

Many investors are shifting their allegiance from mutual funds to ETFs. ETFs offer more transparency and, almost always, lower fees than mutual funds. The question for the thinking investor is how to combine ETFs to build a portfolio that makes sense – meaning, one that has the best chance of achieving the returns you want, with a level of risk you can stand. Wealthfront recently created a slide show presentation, which we show to various companies around Silicon Valley through our seminar program, offering a primer in how to use Modern Portfolio Theory to combine ETFs. We hope that watching it helps you put your own diversified portfolio together, or enables you to ask an investment advisor better questions. Engineer […]