The Time Diversification Controversy

Connelly, Thomas J.
February 1996
Journal of Financial Planning;Feb1996, Vol. 9 Issue 1, p20
Academic Journal
The article focuses on investment decision-making. More than any other professionals involved in the investment world, financial planners are sensitive to matching portfolios to client needs, preferences, and circumstances. There would appear to be a mis-match between relying on a closed, stationary system that relies on historical data, and an open, non-stationary social system that makes up the typical planner's investment planning decision process. The decision process begins with portfolio construction and continues through the monitoring process. Through this process, the investor's time horizon is diminished by each passing year. Changes in investor circumstances, preferences, and needs may change abruptly and unexpectedly, collapsing the investment time horizon. The pro-time-diversification reading of the historical record sets forth a daunting story. Although it is true that the range of terminal wealth values increases with time, the vast majority of that volatility results in better dollar outcomes than treasury-bills or bonds anyway.


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