Applied Finance

Applied Mathematics & Applied Science are common college courses many of us have taken. Applied Science is the application of basic scientific knowledge to solve practical problems. Applied Mathematics has a simialr definition. The terminology of Applied Finance is seldom used but 79 Financial bases its philosphy on it's theory. Applied Finance is the application of basic financial knowledge to create practical solutions to financial needs.

79 Financial believes that the application of the principles of applied finance creates a framework with the best opportunity for clients to be successful. In addition to the concepts discussed below, proven concepts such as minimizing fees, expenses, and taxes are practiced to that end.

Modern Portfolio Theory

Defined by Investopedia, "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.


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. Its key insight is that an asset's risk and return should not be assessed by itself, but by how it contributes to a portfolio's overall risk and return. It uses the variance of asset prices as a proxy for risk.


Economist Harry Markowitz introduced MPT in a 1952 essay, for which he was later awarded a Nobel Memorial Prize in Economic Sciences; see Markowitz model."


In plain English, given the choice between two portfolios that generate identical returns, a rational investor would choose the less risky portfolio. That's a simplified explanation that's easy to understand. In reality, practicing MPT involves assessing portfolios along the Efficient Frontier (see below) to select a portfolio that should provide for an investor to meet their future goals at a risk level that is consistent with their tolerance and capacity to take risk.

Behavioral Psychology

Have you ever filled out a risk profile whenever opening an investment account? You should have! But it was more than likely just a simple set of questions about your age, income, and investable assets. In years past, the risk tolerance question had investors select Low, Medium, or High. What do most people select? Most just select Medium. That's very basic and does little to assist your advisor in recommending a personalized solution.


Don't worry, 79 Financial isn't going to pull out the couch and ask questions about your childhood. But we will use assessments to help us both discover more about your money mindset and how you view and respond to risk.


At 79 Financial, various assessments are used that are based on behavioral psychology. One such assessment is on risk and is used to indicate an asset allocation that is comfortable for the client from a risk standpoint. From there, we can guide clients into an allocation that best satisfies their risk tolerance yet also predicts an acceptable probabilty in achieving future goals. Feel free to take any of the free assessments that we offer.

Efficient Frontier

According to Investopedia, "In modern portfolio theory, the efficient frontier is an investment portfolio which occupies the "efficient" parts of the risk–return spectrum. Formally, it is the set of portfolios which satisfy the condition that no other portfolio exists with a higher expected return but with the same standard deviation of return (i.e., the risk)."


At 79 Financial, we help clients define their goals, evaluate their risk tolerance & capacity, and assemble a portfolio that maximizes its return at that risk level. Successfully implemented, the portfolio will fund their future goals at a level of risk that provides confidence to not deviate from their plan. That confidence leads to success.