Managing Investment Growth Of A Diversified Portfolio Essay

1076 Words Feb 25th, 2016 5 Pages
Managing Investment Growth In order to effectively grow an investment, it is important to analyze risk and diversify securities, to maximize a portfolio to match the goals of the investor. Through analyzing the different classes of risk, one can match investments to an investors risk tolerance and return requirements. While some investments may present greater risk they are countered by a higher rate of return and vice versa, less risk corresponds to a lower return. Moreover, investment risk can be substantially reduced through diversification, which spreads a portfolio across different industries, businesses and investment options. The makeup of a diversified portfolio continuously changes based on an investors time horizon and investment goals. In accordance with the Modern Portfolio Theory (MPT), one can maximize return while reducing risk, through assessing an investments standard deviation and beta. When applied to the capital asset pricing model (CAPM) an investor can determine what the expected rate of return should be and if the risk is worth it. Therefore, by analyzing risk and diversifying investments one can maximize an investment growth increasing a portfolios return.
Investment Risk Investment risk assesses the overall level of uncertainty or volatility associated with investments potential returns. As a result, investment risk helps determine the likelihood of receiving an increased or decreased amount of the expected return on an investment. While…

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