If all investment occurred via a single product, with a single pattern of returns, and no choice, and if this happened over a sufficiently long period that the short term swings of volatility become secondary when measured against the timeline of a typical investor's expected life, then the only one fact you can survive with is the (long term) expected return of that product. I refer to it as a product and not an asset because I imagine it to be the offering of a company or set of companies which may have the freedom to manufacture this product.
But reality isn't like that. And as soon as a second product emerges as a choice (or even if you examine how the company manufactures this product), then correlation and (therefore volatility) enter into the frame.
In the history of major assets, cash was invented first. (Of course, loans existed before all that, and were a huge part of early human culture - the loans being loans of non-cash valuables for non-cash rewards e.g. slaves, food; these goods, like cash, may also have been understood to be fungible and tradeable). Not surprisingly, the place which brought us writing also brought us the first bond. The city state of Nippur in Sumeria offered one. Italian city states pioneered state bonds as far back as the twelfth century, quite a while before the official story that Amsterdam and then the Bank of England invented them. Certainly they set the modern pattern. Shares were known certainly in Roman times, as was property, which had deep underpinnings as the earliest Greek and Roman religions were domestic hearth ancestor religions. This simultaneously raised the cultural value of property but also introduced a whole bunch of restrictions, rules, taboos around selling property. As the Roman republic evolved, and as class war between patricians and plebs loosened the grip of the old domestic gods, property as an asset class began to evolve too.
Inflation, of course, is not an asset. But it is the force which makes cash experience volatility in real terms. So these are the primary financial assets: Cash (and loans), Property, Equities, Bonds. And inflationary pressures contribute to the volatility of all four of these assets. The primordial question is to work out how much each one will return to you, and how uncertain that return could be, and finally, to design of set of weightings which might exploit their time-evolving correlations.
By the time Markowitz came to develop the standard maths of modern portfolio theory, he addressed just two assets, equities and bonds. Why?
