Modern Portfolio Theory saw its popularity go viral through the 1980s and well into the 1990s. This coincided with the mutual fund becoming the de facto standard of the 401(k) option menu.
Can too much of a good thing be a bad thing?
The answer is an unequivocal "yes" when it comes to picking 401(k) plan investment options (see "The Hidden Danger of Over-Diversification: Why 401k Plan Sponsors Must Demand Fiduciary Advisers Teach Employees When Too Much is Too Much," FiduciaryNews.com, September 4, 2019).
To unravel why this is so, we need to go back to Modern Portfolio Theory and a concept known as the "Efficient Frontier." Without diving too deep into a sea of stochastics, here's what the Efficient Frontier comes down to: Don't put all your eggs in one basket.
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Christopher Carosa
Chris Carosa has been writing a weekly article and monthly column for BenefitsPRO online and BenefitsPRO Magazine since 2011 and is a nationally recognized award-winning writer, researcher and speaker. He’s written seven books, including From Cradle to Retire: The Child IRA; Hey! What’s My Number? – How to Increase the Odds You Will Retire in Comfort; A Pizza The Action: Everything I Ever Learned About Business I Learned By Working in a Pizza Stand at the Erie County Fair; and the widely acclaimed 401(k) Fiduciary Solutions. Carosa is also Chief Contributing Editor of the authoritative trade journal FiduciaryNews.com and publisher of the Mendon-Honeoye Falls-Lima Sentinel, a weekly community newspaper he founded in 1989. Currently serving as President of the National Society of Newspaper Columnists and with more than 1,000 articles published in various publications, he appears regularly in the national media. A “parallel” entrepreneur, he actively runs a handful of businesses, including a small boutique investment adviser, providing hands-on experience for his writing. A trained astrophysicist, he also holds an MBA and has been designated a Certified Trust and Financial Advisor. Share your thoughts and story ideas with him through Facebook (https://www.facebook.com/christophercarosa/)and Twitter (https://twitter.com/ChrisCarosa).
