Portfolio Management Basics
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Questions and Answers

What is the primary goal of portfolio management?

  • Minimizing the number of investments in a portfolio
  • Speculating on market trends
  • Investing solely in high-yield bonds
  • Maximizing returns while managing risk (correct)
  • Which strategy involves spreading investments across various assets to reduce risk?

  • Rebalancing
  • Asset allocation
  • Diversification (correct)
  • Active management
  • What does rebalancing in portfolio management refer to?

  • Switching between active and passive strategies
  • Investing in only one asset type
  • Realigning the weights of assets in a portfolio (correct)
  • Adding more investments into poorly performing assets
  • Effective risk management strategies may include which of the following?

    <p>Setting stop-loss orders</p> Signup and view all the answers

    What is the role of performance management in portfolio management?

    <p>Assessing portfolio performance against benchmarks</p> Signup and view all the answers

    Which of the following best describes active portfolio management?

    <p>Frequent buy and sell decisions based on market conditions</p> Signup and view all the answers

    Why is asset allocation important in portfolio management?

    <p>It optimizes the balance between risk and reward.</p> Signup and view all the answers

    Which of the following is NOT a component of portfolio management?

    <p>Market speculation</p> Signup and view all the answers

    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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    Related Documents

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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.

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