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Questions and Answers
What is the primary goal of portfolio management?
Which strategy involves spreading investments across various assets to reduce risk?
What does rebalancing in portfolio management refer to?
Effective risk management strategies may include which of the following?
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What is the role of performance management in portfolio management?
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Which of the following best describes active portfolio management?
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Why is asset allocation important in portfolio management?
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Which of the following is NOT a component of portfolio management?
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Study Notes
Portfolio Management
- Investors actively participating in portfolio management can mitigate market risks and maximize returns.
- Portfolio management involves selecting and overseeing investments aligned with individual goals, risk tolerance, and investment horizon.
- It encompasses investment mix and policy decisions, matching investments to objectives, asset allocation for both individuals and institutions, and balancing risk against performance.
Aspects of Portfolio Management
- Asset Allocation: Dividing investments across different asset categories like stocks, bonds, real estate, and cash to optimize risk-reward balance.
- Diversification: Spreading investments across various assets to minimize the impact of poor-performing investments and enhance overall portfolio stability.
- Rebalancing: Periodically realigning asset weights in a portfolio to ensure the asset allocation remains consistent with the investor's goals and risk appetite, particularly after price fluctuations.
- Risk Management: Identifying, assessing, and mitigating risks within the portfolio. Strategies include using derivatives for hedging, setting stop-loss orders, and maintaining a diversified portfolio.
- Performance Management: Regularly assessing portfolio performance against benchmarks or predetermined goals. This includes measuring returns, analyzing used strategies, and making adjustments for future performance improvement.
Two Kinds of Portfolio Management
- Active Portfolio Management: A proactive approach where managers frequently make buy and sell decisions based on market conditions, economic indicators, and company performance.
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Description
Explore the essential concepts of portfolio management, including asset allocation, diversification, and rebalancing. Understand how these strategies help investors mitigate risks and maximize returns while aligning with their financial goals. Ideal for both individual and institutional investors.
