Vision Financial Planning

CONNECT

Address:

14 Wall Street, Suite 2060
New York, NY 10005

Phone:

718 205-2880

Fax/Other:

718 205-2813

Philosophy

We are adherents of Modern Portfolio Theory (MPT) with a portion of assets managed using Tactical Asset Allocation. 

MODERN PORTFOLIO THEORY

MPT holds that asset allocation is the most important component in investment returns. It was developed by Harry Markowitz in the 1950s. The theory, which won Markowitz a Nobel Prize, states that a portfolio's risk can be lowered if its assets are not highly correlated. For example, consider two highly volatile assets; by themselves, they may experience dramatic moves in price, causing both to be highly risky. If, however, B has a tendency to rise when A falls and A has a tendency to rise when B falls, then a portfolio equally allocated between A and B should not see its value fluctuate substantially. In other words, the sharp, but opposite price moves of both assets cancel each other out.

At the time of its introduction, MPT was considered to be radical because it changed the focus of risk analysis from individual securities to the profile of a portfolio as a whole. Key to the theory is the Efficient Frontier hypothesis, which maintains that for any given level of risk, an optimum level of return exists. By spreading the risk among various asset classes, investors may be able to increase their return for a given level of risk. Failure to properly diversify at any level of risk, may result in an infefficient portfolio.

TACTICAL ASSET ALLOCATION

An active management strategy of rebalancing the percentage of assets held in various categories in a portfolio to take advantage of market pricing anomalies or strong market sectors. 

Asset allocation and diversification do not ensure a profit and do not protect against losses. They are methods to help manage risk.

 

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