Uniform Acts, Modern Portfolio Theory, and An Unintended Consequence

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Uniform Acts, Modern Portfolio Theory, and An Unintended Consequence

by James F. McDonough, Jr. on August 8, 2013

Trustees had been governed by the Reasonable Man standard for investing trust assets that were designed to preserve principal and avoid risk. Then, Modern Portfolio Theory came into prominence and the Reasonable Man rule fell into disfavor. Modern Portfolio Theory (MPT), supported by the work of Nobel Laureates, became the prevailing theory. In the most simple of terms, MPT requires diversification by allocating capital among asset classes or sectors so as to minimize risk.

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