Several media outlets have been writing about the demise of modern portfolio theory and that models used in the past need to be reevaluated in light of the current financial markets.
We agree. The old models need to be reexamined and then discarded. Financial models work well until they don’t work anymore. The reason that they stop working is that they are simply models. They are not theories, like the theory of gravity or the theory of relativity. They are models based on fitting past data into a regression equation. The regression equation is suppose to give everyone an elegant equation upon which to determine asset allocations, among other things.
The problem is that these equations are based not on financial laws but simply past data. Relying on past data to predict future performance is frightening! The world has changed over the past decade and will continue to change.
If you are a Baby Boomer, I strongly suggest you reconsider using models to determine your financial plan and read my book, Bifurcated Retirement: A New Approach for Today’s Baby Boomers. We don’t rely on models. We rely on better ways to secure your financial retirement.
The book can be found at