In the past 80 years there has been an overwhelming amount of academic research focused on the relationship between portfolio construction and the resulting returns. Aside from a handful of Nobel Prize winners, the result of this research is fairly obvious at the surface.  People, even investment professionals and portfolio managers, are not able to predict the future of the market in a way which consistently benefits the investment portfolios they manage.


Since there is no “crystal ball”, what can we do knowing that even the most skilled and sought-after portfolio and hedge fund managers cannot consistently beat the market?

  • Allocate investments intelligently across different asset classes to reduce a portfolio’s risk and maximize expected return.
  • Diversify. Two stocks are better than one, and 5,000 are even better for further reducing specific risk.
  • Seek low-cost investments. History has shown that high-cost funds have largely underperformed those funds with lower costs and similar allocation.
  • Invest for the long term. This can be the most difficult step, especially in market downturns. Asset allocation and Modern Portfolio Theory can only work if your investments are still invested when downturns lose steam and become recovery.