Post modern portfolio theory

Imagine that you have a piggy bank with different colored coins. Each colored coin represents a different investment option, such as stocks, bonds, real estate, or commodities.

Now, you want to make sure that your piggy bank has a good mix of all the different colored coins, so that you can minimize your risk and maximize your returns. This is called diversification.

But, how do you decide which coins to put in your piggy bank and how many of each? This is where post-modern portfolio theory comes in.

Post-modern portfolio theory is a way of combining different investment options in a way that considers not only their historical returns, but also their volatility and correlation with each other.

In simpler terms, it helps you to pick the right investments based on how they behave together. You don't want to put all your coins in one type of investment, because if that investment goes down, you could lose a lot of money. Instead, you want to have a mix of different investments that balance each other out.

Post-modern portfolio theory also takes into account your specific goals and risk tolerance. For example, if you want to take on more risk to potentially earn higher returns, you might choose to have more stocks in your piggy bank. But, if you want to play it safe, you might choose to have more bonds.

Overall, post-modern portfolio theory is a way of creating a balanced and efficient investment strategy that takes into account all the different factors that can affect your returns and your risk. By choosing the right mix of investments, you can protect your money while still earning a healthy return.