post-modern portfolio management

I like how he puts it together. Since portfolio management theory promotes diversification of uncorrelated assets in order to increase return and/or decrease risk, Dalio suggests it is possible to use leverage to increase return on traditionally lower risk asset classes, thus increasing their risk, while reducing portfolio risk. See the link for more details.

Because money can be borrowed to increase the return on assets with low risk, this will increase their return while keeping risk low. This money is simply a cost of capital, but with relatively sure excess returns, and also returns uncorrelated to the traditional high-risk assets like private equity, emerging markets, etc.


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