Ads
related to: how does diversification reduce risk of investment problems and answers
Search results
Results From The WOW.Com Content Network
In finance, diversification is the process of allocating capital in a way that reduces the exposure to any one particular asset or risk. A common path towards diversification is to reduce risk or volatility by investing in a variety of assets.
Specific risk is the risk associated with individual assets - within a portfolio these risks can be reduced through diversification (specific risks "cancel out"). Specific risk is also called diversifiable, unique, unsystematic, or idiosyncratic risk.
Example investment portfolio with a diverse asset allocation. Asset allocation is the implementation of an investment strategy that attempts to balance risk versus reward by adjusting the percentage of each asset in an investment portfolio according to the investor's risk tolerance, goals and investment time frame. [1]
The problem is that most people probably won't be able to pick just the winners, which is why diversification is so important. It limits the pain from the inevitable investment mistakes that ...
Figure 5 shows that an investor will choose a portfolio on the efficient frontier, in the absence of risk-free investments. But when risk-free investments are introduced, the investor can choose the portfolio on the CML (which represents the combination of risky and risk-free investments). This can be done with borrowing or lending at the risk ...
There are, however, two catches: Low-risk investments earn lower returns than you could find elsewhere with risk; and inflation can erode the purchasing power of money stashed in low-risk investments.
Without the help of Wall Street investment advisors, you provided the encouragement to embrace risk where it was warranted and develop a plan for identifying solid growth companies.
Portfolio optimization is the process of selecting an optimal portfolio (asset distribution), out of a set of considered portfolios, according to some objective.The objective typically maximizes factors such as expected return, and minimizes costs like financial risk, resulting in a multi-objective optimization problem.