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Abstract
Using different portfolio ratios, we illustrate the deficiencies of using only modern portfolio theory (MPT) metrics and assumptions when selecting portfolios in a goal-based setting. Through the lenses of the ratios, we show how MPT can choose the “wrong,” albeit efficient, portfolio to accomplish a goal. These facts illustrate the need for goal-based practitioners to factor in other variables, such as time to a goal and maximum loss thresholds, when managing a portfolio to a goal-oriented mandate.
TOPICS: Portfolio theory, wealth management, in wealth management
- © 2016 Pageant Media Ltd
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