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Financial Advisor: The New Modern Portfolio Theory

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Steve was featured in the Expert Views section of FA Magazine on June 14. Read the excerpt below or click here to take a look at the full byline.

Excerpt: Nearly half of all advisors are using some sort of tactical investment strategy, according to new research from Cerulli Assocites. This important research quantifies what we have been witnessing—advisors are actively seeking alternatives to the 60/40 buy-and-hold investment approach of the past.

Why? The 60/40, stock/bond asset allocation model favored by most investment houses and embraced by advisors for a generation is outmoded and not likely to help investors achieve their objectives.

We are in an investment environment that offers historically low traditional investment returns.  Today, the projected return on the traditional 60/40 model is the lowest in 140 years at 4.26 percent (excluding management fees), according to Research Affiliates LLC.

A better definition of a balanced portfolio today is 33/33/34. Enhanced Modern Portfolio Theory didn’t fail the last 12 years; the failure occurred in the construction process. The risks were too concentrated because the solutions were unavailable to most investors. Today, the solutions exist for all investors and advisors.

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