Rethinking Modern Portfolio Theory

Generally, in our quarterly A/L Monitor, we strive to present in depth overviews of salient topics on the subject of Liability Directed Investing (“LDI”). Thus far in 2009, we’ve discussed a variety of issues ranging from the finer details of Cash Balance Plan creation and maintenance to the impact on retirement plans from the Worker, Retiree, and Employer Recovery Act of 2008. Given the investment market turmoil of the last 18 months, however, we have decided to go in a slightly different direction for the next two issues of the A/L Monitor. Instead of focusing on LDI, we’ve elected to explore some of the basic tenets of the investing process, namely Modern Portfolio Theory (“MPT”), it’s inputs and results.