Are Hedged Portfolios More Optimal Than Modern Portfolio Theory or Efficient Frontier Designed Ones?

Jan 27, 2019

In this episode Derek Moore discusses what Modern Portfolio Theory (MPT) and Efficient Frontier Investing means and how traditional investment risk rely heavily on standard deviation and variance to determine where a portfolio fits into a risk metric. Plus, Derek comments on how positive upside returns can actually increase traditionally used investment ratios like Sharpe.

Key  Takeaways:

• • What is Modern Portfolio Theory
• • What is an Efficient Frontier Portfolio?
• • How is investment portfolio standard deviation calculated?
• • Easy ways to understand standard deviation using simple three-day temperature example
• • Explain what a risk adjusted return means in relationship to portfolio returns and volatility
• • Problems with traditional portfolio design especially given low bond yields
• • Why being long markets while being hedged may be more optimal for investors near retirement?
• • How Sharpe Ratio may get worse after strong upside market move.
• • Alternatives such as post-modern portfolio theory only considering downside deviation. 

 

Mentioned  in  this  Episode:

 

Broken Pie Chart Book by Derek Moore https://amzn.to/2COXRAS

 

Target Date Funds https://razorwealth.com/podcast-target-date-investment-funds-good-bad-or-just-misunderstood/

 

Modern Portfolio Theory (MPT) + Efficient Frontier https://www.investopedia.com/terms/e/efficientfrontier.asp