He doesn't want to do anything risky, but he is curious about how he might improve his situation. Our retiree finds himself stuck on the old risk-reward line. But MPT expands the list of options. MPT proves that the risk level of the portfolio as a whole should be considered paramount rather than any separate component. Historical returns from 1926 to 1992, courtesy Ibbottson and Associates.
Historical returns are no guarantee of future performance.
He is comfortable with equity risk, but would like to improve his returns, or lower his risk. The foreign stocks have both a higher return and risk than our domestic market. You might expect that as we mixed the two together the resulting portfolio combinations would fall on a line connecting them. The combination of lower risk and higher returns is why we feel so strongly that global diversification is essential for all investment portfolios. International markets have a very low correlation with our domestic markets.