# Is Modern Portfolio Theory Good or Bad?

By Michael Brouse (@michaelbrouse) · Published 2026-09-20

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Most financial plans are built on a Nobel Prize-winning idea. Most of them are only applying half of it.

In 1952, a 25-year-old grad student at the University of Chicago set out to fix how people invested their money. Back then, investing meant picking stocks you liked and hoping for the best. Nobody could tell you how much risk they were actually taking.

That grad student was Harry Markowitz.

He wasn't a stockbroker. He wasn't a financial planner. He was an economist trained in the same hardcore mathematical optimization used at RAND Corporation to solve logistics problems. So when he looked at investing, he saw an unsolved math problem — not a stock-picking contest.

His answer: diversification is mathematically measurable. You can build a portfolio that gets the highest return for a given level of risk, or the lowest risk for a given return. He called it the efficient frontier.

Today we call it Modern Portfolio Theory. It won him the Nobel Memorial Prize in Economic Sciences in 1990, and it's the foundation nearly every financial plan still stands on.

Here's the half that gets left out, though. Markowitz built the math. He never sat across the table from a retiree deciding how to fund the next 30 years. That part got left to the rest of us — and after 25+ years in retirement planning, I can tell you most plans still leave one asset out of it entirely: home equity.

For most senior homeowners, it's the largest asset they own — sitting completely outside the portfolio conversation, unaccounted for in the risk/return picture Markowitz gave us the tools to build.

If diversification is the closest thing investing has to a free lunch, why are we leaving the biggest asset off the plate?

That's the conversation I have with financial planners, CPAs, and estate planning attorneys every week: have you actually run the numbers on what happens when home equity is part of the plan?

Is home equity part of your clients' portfolio conversation, or a separate one?