Modern Portfolio Theory: How Diversification Reduces Risk

Modern portfolio theory, developed by Nobel Prize-winning economist Harry Markowitz, shows that combining the right assets can lower overall portfolio risk below the risk of any single investment on its own. In this episode, Ryan explains the counterintuitive math behind this: a six-risk asset and an eight-risk asset, when properly diversified, can produce a portfolio with only four units of total risk.Ryan also clarifies a common misconception: owning many stocks does not automatically mean you are diversified. True diversification requires holding assets that are not correlated with each other. Aaron and Ryan work through why this principle now sits at the foundation of how most financial advisors build client portfolios.Find "Your Fiscal Physical" the book on AmazonIf you have suggestions or feedback, please email us at: [email protected], as always, Stay the Course!