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The Journal of Wealth Management

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Primary Article

Beyond Markowitz

A Comprehensive Wealth Allocation Framework for Individual Investors

Ashvin B. Chhabra
The Journal of Wealth Management Spring 2005, 7 (4) 8-34; DOI: https://doi.org/10.3905/jwm.2005.470606
Ashvin B. Chhabra
First vice president and director of Wealth Management Strategies and Analytics, Global Private Client, Merrill Lynch.
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Abstract

In sharp contrast to the recommendations of Modern Portfolio Theory, a vast majority of investors are not well diversified. The author attempts to provide a solution to this diversification paradox, by expanding the Markowitz framework of diversifying market risk to also include the concepts of personal risk and aspirational goals. The wealth allocation framework enables individual investors to construct appropriate portfolios using all their assets, such as their home, mortgage, market investments, and human capital. The investor may choose to accept a slightly lower average rate of return in exchange for downside protection and upside potential. The resulting portfolios are designed to meet individual investors' needs and preferences, as well as to protect individuals from personal, market, and aspirational risk factors. A major conclusion of this work is that, for the individual investor, risk allocation should precede asset allocation.

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The Journal of Wealth Management
Vol. 7, Issue 4
Spring 2005
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Beyond Markowitz
Ashvin B. Chhabra
The Journal of Wealth Management Jan 2005, 7 (4) 8-34; DOI: 10.3905/jwm.2005.470606

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Beyond Markowitz
Ashvin B. Chhabra
The Journal of Wealth Management Jan 2005, 7 (4) 8-34; DOI: 10.3905/jwm.2005.470606
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