In this episode, Mark talks about Modern portfolio theory: Risk adverse investors can construct portfolios to optimize or maximize returns based on a given level of market risk. He says to minimize capital gains as much as you can and you diversify amongst an asset allocation. Owning a mutual fund is NOT asset allocating. It is diversifying within. Volatility on a certain level can create a level of risk. Risk is relative - it is different for everyone. He also talks about the correlation factor: how are different assets correlated to each other. As stock prices go up, bonds go down. How much can you handle your portfolio going down by? How much pain can be endured? During periods of stress investors don’t always stick to the plan.

January 17, 2017