Portfolio Theory - Part 5 (Issues)

ZACH DE GREGORIO, CPA www.WolvesAndFinance.com

This video discusses the issues of Portfolio Theory. The difficulty with using the math formula lies in creating valid assumptions. Assumptions are difficult for a number of reasons. First, it requires a prediction of future correlations. Historical correlations are helpful, but no guarantee of future correlations. Second, you are layering assumptions on top of your existing assumptions for each investment in terms of risk and return. Finally, as portfolios become more complex, it requires even more assumptions. You need to determine a correlation coefficient for each relationship within the portfolio. In my opinion, there are too many assumptions in this model, which can create questions as to the accuracy of results. However, the theoretical concepts of Diversification are valuable, and can be applied to financial strategy.

Neither Zach De Gregorio or Wolves and Finance Inc. shall be liable for any damages related to information in this video. It is recommended you contact a CPA in your area for business advice. ... https://www.youtube.com/watch?v=FjsZXF8y28c