One of the most important ideas in investing is the diversification of asset classes. In 1982, Harry Markowitz developed the idea of an “efficient frontier”. In 1990, two other gentlemen (Miller & Sharpe) developed the idea of the Modern Portfolio Theory (MPT), and garnered recognition when they were awarded the Nobel Prize in Economics.
Since these two developments, discussions about investing and diversification are usually done in context of Modern Portfolio Theory. Most agree that the primary asset classes in diversification are:
- Fixed Income (bonds & mortgages)
- Equities (common stocks)
- Real Estate