The Myth of the All-Weather Portfolio
Via Abnormal Returns:
For quite some time now financial advisers of all stripes have been in search of the elusive “all-weather portfolio.” That is, an asset allocation that serves to protect investors in bad times (bear markets) and performs well in good times (bull markets). Does an all-weather portfolio really exist?
Prior to the economic crisis many would have answered in the affirmative and would have pointed to the large university endowment funds as examples of investors who had achieved this goal. However the aftermath of the credit crisis and ensuing bear market indicate these funds have failed to achieve this goal.
Maybe it isn’t that case that asset allocation models are broken. It may simply be the case that we are asking too much of asset allocation as a discipline. In what other investing endeavor do we expect to have the best of all possible worlds?
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Tags: EMH, investing, MPT, portfolio-management
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