11.S: Summary

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Congratulations ‒ You Have Finished Chapter 11 ‒ Portfolio Diversification and Asset Allocation

You have reached the end of chapter 11, Portfolio Diversification and Asset Allocation. In this chapter, you have:

Been introduced to the technique of diversification as the major method to reduce risk
Reexamined the relationship of risk and return
Examined the role of correlation in assigning risk measurements to asset classes
Explored the negative correlation, also called the inverse relationship, of stock and bond returns
Examined the uses of the techniques of asset allocation, portfolio rebalancing, and dollar-cost averaging to help reduce risk
Reexamined the role of mutual funds in reducing risk

You should now be able to:

Identify the advantages of a well-diversified portfolio
Explain the relationship of risk and return and the role of correlation in assigning risk measurements to various asset classes
Describe the typical negative correlation between stocks and bond and how a diversified portfolio of stocks and bonds can actually help create a portfolio that is less risky than either all stocks or all bonds
Utilize the techniques of asset allocation, portfolio rebalancing, and dollar-cost averaging to help reduce risk
Describe the role that mutual funds have in reducing risk and how many investors typically sabotage their long-term mutual fund results

Congratulations, The Course Is Over!

Well, not quite. We have covered the most important investment alternatives for the vast majority of investors. However, we still have a few odds and ends to take care of. We will spend a little time studying options, futures, buying on margin, and shorting … if only to learn that we should stay far away from these exotic and dangerous speculative strategies. We will also spend some time with some miscellaneous topics in investing including a brief overview of real estate, precious metals and other hard assets, brokerage firms, and the various types of investment accounts. We will even take a quick look at kleptocurrencies, ooops!, my apologies, I meant cryptocurrencies and NFTs. We end by highlighting Starting a Business: The Ultimate Investment!