This article explores the effect of increased market volatility on investment strategies. It explains how changes in risk perception can influence portfolio allocation, moving investors away from riskier assets and towards safer ones. Using charts and economic theory, the author illustrates how the efficient frontier and investor indifference curves shift in response to heightened volatility, ultimately impacting the optimal portfolio composition for rational investors.
I am continually fascinated by how many second-order ‘understandings’ are missed, even by those people who have a really good first-order understanding of finance. For example, every financial advisor understands that bonds are less volatile than stocks. Most financial advisors understand that stocks and bonds in a portfolio together also benefit because they’re not correlated.
This is an important discussion right now, because whether or not you have gotten the message yet that President Trump is going to be much more Machiavellian in his approach to the global world order than prior Presidents have been – and whether you think that’s aof the markets under this regime is likely to be somewhat higher than under Sleepy Joe and also higher than it was during Trump’s first term. And that leads to the second-order understanding about what that implies for markets.
With me? Now consider the next chart. All I have done here is to increase the risk of every asset and shift the whole portfolio efficient frontier to the right. And that brings me to the final chart. This is the Baker, Bloom and Davis news-based Economic Policy Uncertainty Index, which counts the number of articles in US-based news sources that contain a set of predefined terms that indicate uncertainty about economic policy. The dotted lines below show weekly data; the heavy red line shows the 12-week moving average to get rid of the noise.
Asset Allocation Volatility Risk Management Portfolio Optimization Efficient Frontier
United States Latest News, United States Headlines
Similar News:You can also read news stories similar to this one that we have collected from other news sources.
Digital Asset Investment Surges Despite Market VolatilityDespite a volatile week influenced by market concerns, digital asset investment products saw substantial inflows totaling $527 million. Bitcoin led the way, while Ethereum faced challenges and XRP emerged as a strong performer.
Read more »
Market Volatility: DeepSeek's Impact and Uncertain FutureThis news article analyzes the market's reaction to DeepSeek and its potential implications for various indexes. While the Dow Jones exhibits strength, other indexes show signs of reversal. The article highlights the mixed technical indicators and emphasizes the importance of monitoring support levels in the coming months.
Read more »
Trump 2.0 Takes Office: Economic Impact and EOs Fuel Market VolatilityPresident Trump's second term kicks off with a focus on executive orders (EOs) across various sectors, potentially impacting the economy and markets. Bitcoin surge, tariff concerns, and deregulation are key areas to watch.
Read more »
Lido Impact Staking: Revolutionizing Sustainable Social Impact FundingLido Impact Staking (LIS) launches on January 15th, 2025, offering a groundbreaking approach to sustainable funding for social impact. Users can stake ETH, stETH, or wstETH and allocate staking rewards to causes they support, creating a perpetual funding stream for impactful projects.
Read more »
America's Top Billionaires Suffer Major Losses Amid Meta Stock VolatilityA collective loss of over $10 billion was incurred by America's wealthiest individuals on Monday, largely due to fluctuations in Meta's stock holdings. Prominent figures like Mark Zuckerberg, Elon Musk, and Jeff Bezos experienced significant drops in their net worth, indicating market instability and potential waning investor confidence. Experts attribute these losses to rising interest rates and a cooling post-election boom in tech stocks.
Read more »
December CPI Report: Volatility Concerns and Inflation OutlookThis analysis of the December CPI report highlights the challenges of interpreting data due to seasonal volatility, particularly in December. While headline and core inflation figures came in relatively close to expectations, year-over-year trends show persistent inflation above the Fed's target. The author raises concerns about the Fed's policy decisions in light of these data, suggesting potential shortcomings in their inflation forecasts.
Read more »