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Portfolio Diversification
The objectives of diversification are to:
To achieve diversification, the fund will invest in the various categories of assets classes viz., equity shares, debentures, government securities, etc. In most countries, portfolio diversification is subject to the regulations of the local government.
Selecting the Asset Classes
In any investment management system, once the objectives of the investment are set-up, the investor has to focus on the asset classes to invest. The resulting assets of a pension fund must be invested in such a way that the "value creation" goals for the business are most likely met. Capital market investment is one of the key investment vehicles for the pension funds around the world, though they have very unpredictable movements. This study includes current levels of stock and bond indices, their historical changes, inflation projections and also studies of the real estate values. Hence, the capital market expectations play a crucial role in setting the choice of asset classes.
Walk-through tests - Auditor • "Walk-through tests" -That is tracing one or more transactions by accounting system and observing application of internal controls. Rev
An asset needed by the ABC Corp. can be purchased for $100,000. Maintenance and other ownership expenses will total $20,000 each year for the asset's expected 10-year life. On the
Discounted Pay Back Period (DPBP) : The discounted payback period is the number of periods taken in recovering the investment outlay on the present value basis. Discounted pa
Evaluation: Once all the possible events are identified, the next step in the risk management process is to evaluate the events. As stated previously, the evaluation process wo
Asset management Ratios (Turnover Ratios) Receivables Turnover Ratio It is a measure of receivables turnover. Payables Turnover Ratio It is a
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Project Z has a cost of $ 50,000.00, its expected net cash flows are $11,000 per year for 8 years, and its cost of capital is 12 % (Hint: begin by constructing a time line). Ins
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The face value of the debt security can be thought of as the principal amount on which interest is paid by the issuer. It is the amount the issuer is willing to r
While portfolio diversification is the one true "Free Lunch" of investing, if a person starts with just considering long stocks, bonds, commodities and real estate as being the only portfolio options, then true diversification cannot be achieved. That is because conventional portfolio diversification is constrained by the use of "Asset Classes." I discuss this throughout my book, which is the #1 best-selling mutual fund book on the Amazon Kindle.My approach to diversification is quite different from conventional investment wisdom. One concept I think you'll find most interesting is in that I replace asset classes with "return drivers" and "trading strategies" (as I point out in the book, asset classes are simply long-only trading strategies that do not attempt to disaggregate their many separate return drivers). Once viewed in this fashion it is easy to create a truly diversified portfolio, rather than one constrained by the shackles of asset classes.I'm pleased to provide a complimentary link to the final chapter of the book, where I present the benefits (greater returns & less risk) of a truly diversified portfolio: http://bit.ly/vxDo6v.
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