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Chapter 11: Portfolio Diversification and Asset Allocation

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    “Our portfolio is well-diversified. It’s 30% hopes,
    30% wishes, and 40% prayers.

    Learning Objectives

    In this chapter, you will

    By the end of this chapter, you should be able to

    It is Time to Reflect and Assimilate

    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.”

    Presentation file - Study guide

    • 11.1: Diversification and Portfolio Risk
      "Don't put all your eggs in one basket." But some folks disagree. They say, "Put all your eggs in one basket -- and watch that basket!"
    • 11.2: Asset Allocation
      Asset allocation is the process of defining what percentages of the various investment alternatives an investor wants in their portfolio. How much should we have in stocks, bonds, "cash" short-term vehicles, and any other investments that might be attractive to the investor?
    • 11.3: Dollar-Cost Averaging and Mutual Funds, Revisited
      Two other tools of investing that help us reduce risk are our old friends, dollar-cost averaging and mutual funds. Let's revisit them.
    • 11.S: Summary
      Congratulations ‒ You Have Finished Chapter 11 ‒ Portfolio Diversification and Asset Allocation

    This page titled Chapter 11: 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.

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