A More Efficient Frontier

Abstract

By combining more asset classes, the slope of the classic efficient frontier steepens considerably—which is good news for investors desiring better risk-adjusted performance. Rather than evaluating a portfolio that simply contains various combinations of cash and large U.S. stocks, a multiple asset portfolio is evaluated in lieu of large U.S. stocks. When substituting a multi-asset portfolio in place of U.S. large stocks, the efficient frontier is significantly steeper, indicating superior risk/return characteristics.

TOPICS: Portfolio construction, portfolio theory, wealth management