21. Adviser 1: "Long-term asset al1ocation should be determined using an efficient frontier. Returns, risks (standard deviations), and correlations can be deter-

mined for each asset class from historical data. After calculating the efficient frontier for various al1ocations, you should select the asset mix on the efficient frontier that best meets your fund's risk tolerance."
Adviser 2: "History gives no guide to the future. For example, everybody agrees that bond risk has increased above historical levels as a result of financial deregulation . A far better approach to long-term asset allocation is to use your bestjudgment about expected returns on the various asset classes, based on current market conditions. You should rely on your experience to determine the best asset mix and avoid being influenced by computer printouts."
Adviser 1 Rebuttal: "Current market conditions a re not likely to persist into the future and are not appropriate for long-term asset allocation decisions. Moreover, your use ofjudgment and experience can be influenced by biases and emotions and is not as rigorous a method as my efficient frontier approach."
Evaluate the strengths and weaknesses of each of the two approaches presented above. Recommend and justify an alternative process for asset allocation that draws from the strengths of each approach and corrects their weaknesses.