For decades, your investment portfolio has been an important academic idea that has not stayed very well: effective markets. There is a direct line from the effective market theory about Eugene Fama in the 1960s to modern portfolio theory. It paved the way for index funds, a strategy that has not only weathered market cycles, but also became the standard for management of pensions and pension accounts.
When we enter a new era of digital financing, tokenized assets can offer a way to expand our investment horizons in ways that traditional models have overlooked.
Genesis of modern portfolio
Investment of index fund did not occur randomly. In the early 1970s, in the midst of heavy debates on market efficiency, Burton Malkiel’s sperm work, which spoke index funds in 1973 (in his book “A Random Walk Down Wall Street”), embodied in John Bogle’s launch of Vanguard S&P 500 Fund in 1975.
This cemented a strategy that focused on broad diversification and minimal trade. Astonishing, passive index investment has prevailed around the world, although the theory that underlies investors is always rational, have not stayed well.
Behavioral psychologists such as Daniel Kahneman and Amos Tversky informed the shortcomings of our decision -making processes. This is highlighted in Daniel Kahneman’s award -winning book, “Thinking quickly and slowly.”
In the following decades, economists have reconciled effective markets and irrational behavior in the concept of “pretty good markets.” Aggregated wisdom in the form of awards tendencies to be right, with time, however, from day to day and case to case there are significant gaps that investors can exploit. Index funds have stayed well because it is difficult to exploit these options that are difficult to do consistently or cheap.
At the same time, the legislative framework that controls institutional investment is strengthening this dependence on witnessed strategies. Founders operate under strict confidence tasks that require them to prioritize client interests and reduce the risk. As a result, they assign the majority of their portfolios to assets with long, established track records, typically government bonds and passive equity funds.
In short, the criteria for “acceptable” investments are not driven solely by potential returns; They are fundamentally linked to data history, reliability and transparency. In case you were speculating, it means index funds.
In this environment, it is not easy to venture into unprotected territory. New asset classes, no matter how promising, originally sidelines because they lack the long -term, daily data that make them viable to admission to a fiduciary portfolio. Until now, almost all portfolio theory has been based on US equities and government bonds. Although this universe has been expanded over time to include index funds and bonds from other large economies, it still represents only a relatively small part of the world’s assets. Portfolios are limited at the intersection of rules and data. And it will all change.
Tokenization: Expanding the universe of investable assets
Tokenization and on-chain transactions not only offer a scalable way to pack any kind of active. They also offer a path to transparent, comparable data on asset values. By representing assets in the real world, whether it is Thai real estate, Nigerian oil dishes or New York Taxi Medals such as digital tokens on a blockchain, we can start generating the kind of daily, market-derived data that has traditionally been reserved for a narrow set of assets.
Consider a simple question: How much Thai real estate should appear in a diversified pension portfolio? Under current models, the answer is hidden by a lack of reliable, continuous price data. But if Thai real estate was tokenized and established a market on the chain with daily closure prices, it could eventually be measured against the same measurements used for US shares. Over time, this would force a re -study of the static, index -based approach that has dominated investment strategy for so long.
The consequences of global funding
Right now, alternative strategies – as pension fund managers refer to everything that is not a stock or bond index – no more than 15-20% of most funds. Changing academic data on investment options would set up the other 80% to get hold of.
Imagine a future where a truly diversified portfolio is not limited by the framework of traditional equity and debt markets. With tokenization, investors from large institutional foundations to individual savors could get exposure to asset classes and geographical regions previously ignored due to data button or illiquidity. The principles that support modern portfolio theory would not be discarded. Rather, they would be expanded to include a wider range of risk and return profiles.
As tokenized assets build track records, Fiduciaries, which today favors the predictability of bonds and index funds, may find themselves forced to calibrate their strategies. It is not that the rather good market hypothesis becomes obsolete. Instead, the parameters of what constitutes “effective” can be significantly expanded. A richer data set could lead to better informed risk assessments and ultimately to portfolios that capture a more accurate picture of the global value.
A measured but inevitable shift
This will not happen overnight. The fastest we are likely to see that changes arise is about a decade if one assumes time to build a broad portfolio of tokenized assets and 5-7 years to build a daily information track. However, when the data is present, changes could come quickly thanks to widespread use of artificial intelligence.
One thing that often slows down the spread of change is a lack of intellectual bandwidth from fund managers and consumers to adapt to new data. It took about 40 years to move pension fund investors from a 95%+ bond model in the 1950s to a majority index fund model in the 1990s. It took about 30 years before index funds became the dominant stock investment vehicle after the evidence showed that they were the best option.
In a world of AI-driven automated investment tools, the transition may happen much faster. And with hundreds of trillion of dollars in assets under management, every percentage point change in allocation strategy is a small tsunami of change of oneself. We will also host a free session at the place where digital assets will have in portfolios on the upcoming EY Global Blockchain Summit, 1 -3. April.
