When exploring the world of finance and investing, you might encounter various myths and misconceptions about Modern Portfolio Theory (MPT). So let’s debunk some of these myths.
Modern Portfolio Theory (MPT) is an investment theory developed by Harry Markowitz in 1952. He was later awarded a Nobel Prize in Economics for his work in this area.
‘Reversion to the mean’ is a statistical phenomenon where a variable that deviates significantly from the mean or average will likely move closer to the mean over time. This is an outcome of the law of large numbers.
Risk-free bonds are a theoretical concept in finance, referring to an investment that guarantees return without any risk of financial loss. The idea is that the bond issuer has a 100% probability of fulfilling their debt obligations, meaning that the investor will receive the agreed interest payments and the return of the principal at maturity.
One of the unique features of US fiscal policy is the concept of a “debt ceiling”. This term, which often arises in economic and political discussions, has profound implications for the US government and its financial obligations.
The Japanese real estate market experienced one of the most significant crashes in history during the late 1980s and early 1990s. This was a notable event in economic history. The asset bubble, as it was called, was fueled by excessive lending by Japanese banks, low-interest rates, and speculative investment.
A reserve currency is a foreign currency held in substantial quantities by governments, central banks, and other financial institutions as part of their foreign exchange reserves. These reserves are typically used to stabilise their domestic currency’s value and to conduct international trade and investment transactions.
Stagflation is a condition in which an economy experiences a combination of stagnant economic growth, high unemployment, and high inflation. Stagflation is a rare and often challenging economic phenomenon because it presents policymakers with a tough trade-off between stimulating economic growth and controlling inflation.
A family office is a private wealth management advisory firm that serves high-net-worth families and individuals. It provides financial and personal services to manage their wealth and investments, including asset allocation, tax planning, estate planning, philanthropy, and, often, lifestyle management services such as travel arrangements, concierge services, and private staff hiring.
Exchange Traded Products (ETPs) are a category of financial instruments that includes Exchange Traded Funds (ETFs), Exchange Traded Notes (ETNs), and Exchange Traded Commodities (ETCs). ETFs are a specific type of ETP.