False Precision in Portfolio Construction: Misconceptions That Undermine Asset Allocation
Despite advances in data, models, and analytics, many persistent misconceptions continue to shape multi-asset portfolio construction and asset allocation. This paper argues that these errors are structural rather than informational, arising from the routine use of simplified risk measures, diversification heuristics, and benchmark-relative frameworks in multi-asset strategies. In this article, we examine how commonly used tools, such as volatility, correlation, backtests, and performance metrics, can obscure portfolio-level risk, overstate diversification benefits, and misrepresent strategy robustness, particularly during periods of market stress. The article emphasizes that effective multi-asset allocation relies less on optimization precision and more on judgment, governance, and a clear understanding of how risks interact across assets and strategies over time.
Authors
- Igor Yelnik
- Frank J. Fabozzi
Institutions
- Chief Scientist Office (GB)
- University of Baltimore (US)
Publication Details
- Journal
- The Journal of Portfolio Management
- Published
- 2026-01-19
- DOI
- https://doi.org/10.3905/jpm.2026.1.812
- Primary Topic
- Financial Markets and Investment Strategies
- Type
- article
- Field-Weighted Citation Impact
- 0.00