Portfolio Management And Risk Management Essay

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Portfolio management and risk management aim for the same goal to diversify risk. In portfolio management, an investor will utilize capital they have earned over a period of time and invest their capital to earn a return on their investment. The size of their investment depends on their risk appetite, if they are young they will generally be more aggressive with their investment choice and when the investor is getting older/ closer to retirement they will invest more conservatively. The aggressive investor may utilize stocks, options, futures, and other investment vehicles to gain a substantial return, and the conservative investor may utilize bonds, stocks, and other investment vehicles to gain a smaller less risky return. For any risk appetite there is an optimal point in which the desired risk level matches the expected return on investment. The point here is that no two investors are the same and based on a variety of factors not all of them aim to do the same thing with their capital investment. Two common attributes that a portfolio has regardless of size or risk appetite is: the investor wants a return on their investment, otherwise why invest, and secondly the portfolio must be diversified. Diversification means that “not all your eggs are in one basket” or an investor will pick and choose several different non-correlated investment vehicles to gain a return on their investment. Just like in risk management, portfolio management cares about the big picture not…

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