More Articles
-
Slick TV ads often make financial planning and wealth management sound simple, but it’s usually not. Managing wealth requires knowing a lot about highly technical topics, like taxes, government regulations, and finance as well as history, psychology and how to communicate with loved ones about sensitive issues. This article highlights some of the knowledge needed to manage wealth and why it’s often so daunting without the help of an independent personal financial advisor who is familiar with your situation.
-
Understanding The Federal Reserve Mandate To End Inflation
The Federal Reserve System, the nation’s central bank, has a dual mandate to pursue maximum employment and maintain price stability. These two priorities are currently treated equally, but that was not always the case. In fact, the Fed’s bias toward maximizing employment was a critical driver of the stagflation that plagued the U.S. in the late 1960s and 1970s. Recognizing the need to balance price stability and maximum employment, in 1977, Congress revised the Federal Reserve Act.
-
Fed Governor Kugler Details Inflation And Economic Outlook
The 12-month inflation rate, as measured by the personal consumption expenditures (PCE) index, was 2.6% in December, down from its peak of 7.1% in June 2022, and the six-month rate for PCE inflation was even lower, at 2%, which is the target rate set by the Federal Reserve.
-
Why Rates May Not Be Cut Until June
The cost of a loan to buy a home, car, college education, and achieve the American Dream is staying the same for now. As expected, Federal Reserve Chairman Jerome Powell said the central bank did not lower loan rates following the Fed’s Wednesday, Jan. 31, 2024, policy meeting.
-
Practical Suggestions For Achieving Your 2024 Resolutions
New Year’s resolutions usually fail because they‘re often too hard to achieve. After six months, only 10% of people who make resolutions achieve them or remain committed to them, , according to a study by Dr. Mark Griffiths, a Chartered Psychologist and Distinguished Professor of Behavioral Addiction at the Nottingham Trent University. What can you do to make financial, medical, or other personal resolutions more likely to be achieved?
-
A Sign Of Progress In Solving U.S. Economic Problems
The Federal Reserve appears to be pulling off a feat most experts did not believe it could: ending its aggressive inflation-fighting campaign of 11 interest rate hikes without tipping the U.S. economy into a recession.
-
Fed Keeps Rates Unchanged; Expects Easing In 2024
To promote transparency and free markets, the Federal Reserve System began publishing the opinions of the 19 U.S. central bankers that decide interest rate policy.
-
Have You Logged Into Your Social Security Account?
Have you logged in to your Social Security account? Creating an online account at SSA.gov is an important first step in understanding your retirement income situation. However, only about 60 million of the 160 million individuals in the U.S. labor force who have Social Security accounts have created a way to access the Social Security Administration’s website.
-
The Great Fake Out Of 2023 Is Poised To Extend Into 2024
All year long, the economy and stock prices have fooled experts and consumers, outperforming expectations month after month.
-
Test Your Financial Planning IQ
The five questions below are a challenge meant to allow you to assess your knowledge of investing, tax and financial planning. If you have been following our news stream, this quiz draws on familiar ground. The answers are below.
- Read More
Planning Briefs
A Framework For Investing For Life
Published Wednesday, October 6, 2021 at: 10:21 AM EDT
Modern Portfolio Theory, or MPT, is a framework for investing. It provides part of the intellectual underpinning of our firm’s approach to managing investments. So, it is important to explain it periodically.
Just as constructing the framework for a home is strategically designed by connecting one piece of wood with another, MPT provides a system for constructing a portfolio based on measurable dimensions of investments – history and quantitative characteristics.
Owning different kinds of investments is less risky than owning only one type of asset, and MPT is a system for diversifying across a wide range of assets based on their statistical characteristics.
Classifying investments based on their distinct characteristics -- such as the aggregate value of a company’s shares outstanding, profit growth, and share-price variance -- imposes a quantitative discipline for selecting combinations of investments based on historical data. Investments revolve around a world that is always changing, however, and not enough statistical history of different kinds of investments exists to make investment predictions about the future with certainty. MPT is a way of managing that uncertainty.
Just as every stud and joist in a home has its own mathematical dimensions, investments have their own unique shape and characteristics. MPT organizes statistics that measure the characteristics of different kinds of investments used to construct a portfolio. It’s a way of building a portfolio so that the return you expect over the long run is maximized for a given level of risk.
Just as a home can be built to your personal needs and preferences, so, too, can a portfolio be custom-built to suit your personal risk tolerance specifications. To be clear, cookie cutter portfolios is not what we do. Each portfolio can be tailored to an investor’s preferences.
Economist Harry Markowitz introduced MPT in a 1952 essay. He was awarded a Nobel Memorial Prize in Economic Sciences in 1990. Thus, it took from 1952 to 1990 -- 38 years -- for Markowitz to be recognized by the Nobel committee. This provides insight into the how long it takes for knowledge to be accepted.
Over the last 70 years, the power of Modern Portfolio Theory has grown to be understood. It is now the framework for investing embraced by most institutional investors worldwide and it is now a foundational element in teaching finance at the world’s best colleges and universities.
MPT is a starting point for constructing a quantitatively driven portfolio based on fundamental economics. Just as the laws of physics are relied upon for building a home, fundamental factors of economics are relied upon in constructing a portfolio using MPT. To receive a report on investment performance and current financial economic conditions, please contact us.
Nothing contained herein is to be considered a solicitation, research material, an investment recommendation, or advice of any kind, and it is subject to change without notice. Any investments or strategies referenced herein do not take into account the investment objectives, financial situation or particular needs of any specific person. Product suitability must be independently determined for each individual investor. Tax advice always depends on your particular personal situation and preferences. You should consult the appropriate financial professional regarding your specific circumstances. The material represents an assessment of financial, economic and tax law at a specific point in time and is not intended to be a forecast of future events or a guarantee of future results. Forward-looking statements are subject to certain risks and uncertainties. Actual results, performance, or achievements may differ materially from those expressed or implied. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete, and is not intended to be used as a primary basis for investment decisions. This article was written by a professional financial journalist for Advisor Products and is not intended as legal or investment advice.
©2021 Advisor Products Inc. All Rights Reserved.