Photo: Doug Davey. Source: Flikr. CC-BY-2.0
In physics, scientists are searching for a unified theory. It’s possible one doesn’t exist. Ever since Maxwell discovered the equations that combine the forces of electricity, magnetism, and light, physicists have tried to tie all the rest of the fundamental forces in the universe together. Einstein described how electricity and magnetism work with his theories, but he couldn’t tie in gravity, or the forces that hold a stable atomic nucleus together, or other forces.
Today, competing explanations for all these forces go by names like String Theory, Brane Theory, or Warped Gravity. They’re all highly complex mathematical approaches to very difficult problems. There’s no consensus on a single solution. One thing they do agree upon, however, is that what we observe depends on how we look at things.
Maxwell Equations for light and magnetism. File: Yassine Mirabet. Source: Wikipedia
In finance as well, people want to find universal answers. What’s the best portfolio? What’s the best accounting method? Which stock is the best to invest in right now? In finance, as in physics, there are fundamental forces at work: capital seeks return, excess return entails various risks, and diversification can moderate some of these risks. But putting it all together also depends on your perspective.
The best portfolio is the one that meets your individual needs over time. If you need income, a fast growing private equity portfolio won’t provide that. If you’re just starting out and saving for retirement, a ladder of CDs won’t give you much growth. There’s no single approach that’s ideal for everyone. There are an array of individual requirements and limitations that have to be applied by each investor before anything is ever bought or sold.
Responsible people understand that life is complex. Anyone who tells you otherwise is probably selling something.
Douglas R. Tengdin, CFA
Charter Trust Company
“The Best Trust Company in New England”