Rebalancing as a Discipline After choosing a strategic asset allocation, portfolios will drift away from those allocations as market conditions change and affect the relative weights of investments within a portfolio. One choice is clearly to ‘do nothing,’ also known…

Passive Vs. Active Management In investment choices, investors have the initial question of whether their investments should be passively or actively managed. Passive management refers to tracking the performance of various indices, such as the S&P 500, and not making…

 The global market portfolio is a theoretical representation of the aggregation of every investable asset with respective weights held constant. While there may be an ETF somewhere that attempts to mimic this, it is safe to say that the…

Utility and Maximization Strategic asset allocation involves deciding among the various securities within a portfolio and the relative weightings of each. Asset allocation differs from Investor to Investor as the optimal mix depends on the investor’s preferences. The utility theory…

Three Super Classes An asset class is a group of assets that all share some common elements. Asset classes help organize investment portfolios into separate components. We can start with the broadest sense of the word and divide assets into…

Three Super Classes An asset class is a group of assets that all share some common elements. Asset classes help organize investment portfolios into separate components. We can start with the broadest sense of the word and divide assets into…

Portfolio managers rely on one of three frameworks for analyzing and managing their portfolios. The three approaches below have advantages and disadvantages, which the analysts and managers must know to make prudent investment decisions. Asset-only Approach This approach considers only…

Portfolio managers rely on one of three frameworks for analyzing and managing their portfolios. The three approaches below have advantages and disadvantages, which the analysts and managers must know to make prudent investment decisions. Asset-only Approach This approach considers only…

 The Economic Balance Sheet An economic balance sheet is a snapshot in time of an investor’s assets and liabilities. But rather than just capturing physical and/or financial assets, as does the traditional balance sheet, the economic balance sheet also…

Governance Structures Corporate governance focuses on clarifying the mission, creating a plan, and reviewing progress toward achieving long and short-term objectives. In contrast, management efforts are geared toward outcomes—the execution of the plan to achieve the agreed-on goals and objectives….