Asset Allocation

Wellspring Wealth creates portfolios using defined asset class components, which attempt to achieve market returns in those asset classes.  Wellspring Wealth engineers structured market portfolios based on the semi-strong form of the “Efficient Market Theory” (EMT) of Eugene Fama of the University of Chicago. This form of EFT implies that a stock’s current share price reflects all public information. Neither fundamental nor technical analysis produces consistently superior investment gains.

Harry Markowitz won the 1990 Nobel Prize in Economics for his theory on how risk-averse investors can construct portfolios in order to optimize market risk against expected returns. His research showed that by combining low correlated assets in a portfolio, the portfolio’s return increased while its risk or volatility decreased. Also called “Modern Portfolio Theory” (MPT) it was pioneered by Markowitz in his paper “Portfolio Selection,” published in 1952 by the Journal of Finance

Furthermore, a study by Brinson, Hood, and Beebower (1986, 1990) found that asset allocation determined 94% of the variability of a portfolio’s return and that security selection and market timing determined very little of a portfolio’s positive return.  Wellspring Wealth assesses the correlation between asset classes and evaluates the impact of these correlations on a portfolio. We then match a specific allocation and its risk/return characteristics to the investment objectives of our clients.

* Asset allocation does not ensure a profit or protect against a loss.