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" ... Until the early 90’s Strategic/Modern Portfolio Theory had a big influence on the allocations of pension funds and endowments and how their portfolios were structured. Today many Wall Street firms and advisors still use this theory to structure portfolios for individual investors. The rational is that this model is used by large institutions, it can be applied for the long-term, it is passive, disciplined, and eliminates the inclination for individual investors to overtrade or use market timing thus keeping investors in the market. The idea behind the theory is to allocate to asset classes that are less correlated or negatively correlated to each other with the expectation of enhanced returns and reduced risk to the portfolio. Key to Modern Portfolio Theory is to rebalance back to original weightings at set times with the idea being to purchase undervalued assets while trimming overpriced assets. The assumption is that asset classes will revert back to the long term average performance (“reversion-to-the-mean”). The Strategic model came into question as the correlation of most asset classes, outside of government bonds, became highly correlated during the large market declines and still have not started behaving statistically/predictability as in the past after the markets began to recover. This has led to the Modern Portfolio/Strategic theory models dramatically underperforming the major averages for the last 10 years. Over the past 10 years, the broad diversification to sub-categories such as International, Emerging Market stocks and bonds, and Commodities have worked against those portfolios. An important fact to keep in mind is that correlations change over time, sometimes quite dramatically. ... "