Social Media Assignment: Foundations of Investment (BMF5332)

🚨 Portfolio Reality Check: 60/40 vs. The Efficient Frontier

I rebuilt a Markowitz mean–variance pipeline in Python to test whether the classic 60/40 allocation holds up against an optimized tangency portfolio.

📊 Inputs (sample): • Stocks: S&P 500 Total Return (Yahoo) • Bonds: 7–10Y Treasuries (IEF) • Risk-free: 3‑month T‑Bills (FRED) • Global: JST equal‑weighted 18‑country index (annual → monthly approximation)

1️⃣ 60/40 benchmark: • Ann. Return: 22.91% • Volatility: 16.17% • Sharpe: 1.42

2️⃣ 'Optimal' (Tangency) portfolio: • Weights (Stocks/Bonds): 30.5% / 69.5% • Sharpe: 1.44

⚠️ Key caveat: Naive Markowitz is sensitive to estimation error: small changes in means/covariances can produce large swings in optimized weights. Treat tangency weights as a theoretical benchmark, not a mechanical allocation rule.

Verdict: 60/40 remains a practical behavioral baseline; optimization highlights tradeoffs but can be unstable without robust estimation or constraints.

#AssetAllocation #QuantFinance #Investing #Python #PortfolioManagement