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Our Research Based Approach Diversification Our approach: Research shows that diversification across different asset classes and within asset classes reduces portfolio volatility in the longer term. We therefore recommend investment in all the major asset classes - cash, fixed interest, Australian shares, international shares and property and within those asset classes use an index style approach.
The research: The Journal of Finance Harry Markowitz March 1952, Vol. 7, No. 1: 77-91
What the paper says: Markowitz's proposition was that investors would use diversification to reduce the risk (volatility) of their portfolio for their chosen level of return.
In the author's own words: "Diversification is both observed and sensible; a rule of behavior which does not imply the superiority of diversification must be rejected.."
The next page in the research story - the Three Factor Model
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