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When Bad Things Happen to Good Portfolios: Rethinking Risk and Diversification
Published in Investments & Wealth Monitor, January/February 2010

For more than 20 years advisors and investors built portfolios based on a belief that risk could be minimized and successfully managed using appropriate diversification—an intelligent mix of stocks, bonds, cash, and real assets. And, for most of those 20 years, it worked—the markets experienced an unprecedented period of steadily rising equity prices (with a few hiccups), low volatility, low and falling interest rates, easy access to credit, and general economic stability. However, the events of 2008 and early 2009—the collapse of the credit markets, the evaporation of liquidity, the skyrocketing increase in volatility, the lock-step correlations between asset classes, and the precipitous decline in global equity prices—dramatically challenged the “truth” of MPT. Read the article.