The Efficient Frontier

Investors strive to pursue a portfolio that delivers the maximum possible return for a particular level of risk. Harry Markowitz (considered the father of modern portfolio theory) laid out the framework to find this optimal portfolio. This set of optimal portfolios are what make up the Markowitz efficient frontier.

Efficient Frontier with Traditional Stock/Bond/Cash Mix

Building on the traditional allocations (stock, bond, & cash), we seek to push out the efficient frontier and in turn lower portfolio volatility by incorporating alternative assets into the mix.

Efficient Frontier with Alternative Assets Included (Hypothetical Illustration)

Through Markowitz’s initial developments and different interpretations thereafter, financial modeling and simulations have become a front runner in resources to develop efficient portfolios. As financial modeling continues to evolve so do we at CFA. Whether it’s selecting new financial models to adopt or subscribing to independent research firms, we are always seeking out the best solutions for our clients.