It is a formalization and extension of diversification in investing the idea that owning different kinds of financial assets is less risky than owning only one type. Following this approach the retiree should not outlive their money.
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Modern portfolio theory MPT or mean-variance analysis is a mathematical framework for assembling a portfolio of assets such that the expected return is maximized for a given level of risk.
. We care because the 6040 portfolio fits in the sweet spot of the 4 Rule. Bengen found that retirees should hold somewhere between 50 and 75 in equities. Why do we care about the 4 rule.
In a later book he identified 6040 as the ideal portfolio in retirement to avoid outliving a nest egg.
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