One of the classic underpinnings of Modern Portfolio Theory needs an update.
In the early 1950s, Harry Markowitz's work on mean-variance optimization blazed a new investing paradigm. His Efficient Frontier produced a variety of insights, not the least of which is the value of portfolio diversification. His classic graph shows various combinations of a simple two-asset portfolio - the typical pairing being U.S. Treasuries and large-cap U.S. stocks. The characteristic upward slope illustrates the risk/return trade-off when moving to an increasingly stock-based portfolio from a cash-based portfolio.
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