Skip to main content
Business LibreTexts

Part 4: Portfolio Diversification and Asset Allocation

  • Page ID
    79441
  • \( \newcommand{\vecs}[1]{\overset { \scriptstyle \rightharpoonup} {\mathbf{#1}} } \) \( \newcommand{\vecd}[1]{\overset{-\!-\!\rightharpoonup}{\vphantom{a}\smash {#1}}} \)\(\newcommand{\id}{\mathrm{id}}\) \( \newcommand{\Span}{\mathrm{span}}\) \( \newcommand{\kernel}{\mathrm{null}\,}\) \( \newcommand{\range}{\mathrm{range}\,}\) \( \newcommand{\RealPart}{\mathrm{Re}}\) \( \newcommand{\ImaginaryPart}{\mathrm{Im}}\) \( \newcommand{\Argument}{\mathrm{Arg}}\) \( \newcommand{\norm}[1]{\| #1 \|}\) \( \newcommand{\inner}[2]{\langle #1, #2 \rangle}\) \( \newcommand{\Span}{\mathrm{span}}\) \(\newcommand{\id}{\mathrm{id}}\) \( \newcommand{\Span}{\mathrm{span}}\) \( \newcommand{\kernel}{\mathrm{null}\,}\) \( \newcommand{\range}{\mathrm{range}\,}\) \( \newcommand{\RealPart}{\mathrm{Re}}\) \( \newcommand{\ImaginaryPart}{\mathrm{Im}}\) \( \newcommand{\Argument}{\mathrm{Arg}}\) \( \newcommand{\norm}[1]{\| #1 \|}\) \( \newcommand{\inner}[2]{\langle #1, #2 \rangle}\) \( \newcommand{\Span}{\mathrm{span}}\)\(\newcommand{\AA}{\unicode[.8,0]{x212B}}\)

    Congratulations! We have covered the most important investment alternatives for the vast majority of investors. It is time now to go back to the very beginning of the semester and tie everything together. We will reexamine the eternal struggle of risk versus return. We will see how a well-diversified portfolio can help us reduce risk while still offering us an attractive return. It turns out we can eat reasonably well and sleep reasonably well! We will also take a look at the techniques of asset allocation, portfolio rebalancing, and dollar-cost averaging and reexamine the role of mutual funds in diversification. We end with yet another example of what Mr. Benjamin Graham told us many years ago, “The investor’s chief problem, and even his worst enemy, is likely to be himself.”

    "Diversification" by -Jérôme- is licensed under CC BY 2.0


    This page titled Part 4: Portfolio Diversification and Asset Allocation is shared under a CC BY-NC-SA 4.0 license and was authored, remixed, and/or curated by Frank Paiano.

    • Was this article helpful?