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This year is the Platinum Jubilee. A moment to celebrate, not just for royalists, but for portfolio theorists too. For it is 70 years since Harry Markowitz published his seminal paper “Portfolio Selection”, which appeared in the Journal of Finance in March 1952. Markowitz provided - for the first time - a quantitative framework to assess the benefits of diversification of a given portfolio, setting out the idea of a risk-return trade-off. Investors wishing to make higher returns must accept higher risks.
For the past decade, investors could be forgiven for having forgotten this simple premise. Because over this period, all that has really mattered for investors in terms of risk and return is that they have been invested in growth stocks, and ideally the biggest companies in global equity markets. It is a truism that history does not repeat itself, so as the ISA season draws to an end, what are the options for investors looking to tuck spare cash away for the long term and let the magical effect of compounding do the hard work? Our analysts debate the merits of two very different approaches an investor can take to achieve the same goal.
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