Week 5 Individual Assignment

Week 5 Individual Assignment - A sound investment strategy...

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A sound investment strategy will balance risk and reward within a portfolio according to individual investors goals, risk tolerance, and time horizon because there are many different situations that a person can have in life, no two people's portfolio will be exactly alike. A common misconception is that a portfolio that works for one person can be mirrored and copied and will work for all people. This is incorrect because there is no simple formula that can assess the risk tolerance for a group of different individuals. Asset allocation is the key to diversification of a portfolio. The standard rule of thumb is that a person takes their age subtracted from 100 bed remaining number should be the percentage of stocks and a portfolio. As a person gets older in life, their appetite for risk should decrease. This is in part due to the optimal working age being at a much younger point in life. A young person has the ability to earn overtime what could be lost from a risky investment. ?? Diversification Diversification is a risk management technique that mixes a large variety of investments within a portfolio. Alternative investments are used to secure the mix of holdings within a portfolio. Alternative investments can be categorized into five different types: 1- Direct Equity Claims, 2-Indirect Equity Claims, 3-Creditor Claims, 4-Preferred Stock, and5- Commodity Futures. Derivative securities may further enhance a portfolio when the investment vehicles into equity, debt and derivatives and those include debt instruments, fixed income; mutual funds, treasury bills, notes, bonds, CD’s, commercial paper, MBS’s, international, municipal and corporate bonds. Equity instruments includes; common stock, preferred stock and American Depository Receipts. Derivative instruments are options and futures.
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Systematic Risk Systematic risk is the risk that is inherent to the entire market. It also be called market risk. Or diversity risk. Some risk cannot be avoided even with diversification. As what is happening with our economy right now, the threat of recession, the interest rate environment, the global economic environment and wars all sources of systematic risk. These risk cannot be mitigated through diversification. On the other hand, unsystematic
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Week 5 Individual Assignment - A sound investment strategy...

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