The reliance on “volatility” or “risk” as a
basis for allocating trust assets and select-
ing individual investments under the Uni-
form Prudent Investor Act and related
statutes has been called into question by
rising correlations between asset classes,
by two crashes in a decade, and by studies
showing that taking on risk does not nec-
essarily lead to higher returns. Asset allo-
cations relying on bonds face serious risks
as rates continue to be suppressed, leading
to negative real returns for bond invest-
ments (mirroring results from the post-
World War II era where rate suppression
led to a 40 per cent loss in real bond val-
ues). Taking on alternative investments to
prop up portfolio income becomes a major
danger to fiduciaries, including substantial
surcharges for some corporate fiduciaries.