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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.
Federal Agency Securities are those securities issued by federally related institutions and those issued by Government-Sponsored Enterprises (GSE). Securities iss
London Interbank Offered Rate (LIBOR) This is the base lending rate which is charged by banks in the London Eurocurrency market. LIBOR is the European equivalent of the U.S. pr
Financial management is that division of managerial process which is concerned with the planning and controlling of firm's financial resources. It is concerned with the procurement
Q. Merits of Wealth Maximization Approach? Merits of Wealth Maximization Approach:- The wealth maximization schema is superior to the profit maximization approach because:
The main drawback of the tradition approach of valuation is that it discounts every cash flow using the same discount rate. For example, let us take 5-year (7.00 per ce
Callable bonds give the right to the issuer to redeem the bond prior to its maturity date, at a specified call price. These bonds are beneficial to the
Question 1: "The governance of modern states demands that a relentless struggle be waged against the scourge of corruption." Discuss. Question 2: Explain clearly how th
Preferred Stock This is a category of capital stock that will gives its holders preference over common stockholders in the distribution of earnings or rights to the assets o
What is Control risk That material misstatement could take place and not be detected, or prevented on a timely basis, by accounting and internal control systems. All audits
a) Variable costs: Remuneration of flight attendants, Meals and drinks onboard, Fuel. Fixed costs: promotions and Advertising, Remuneration of administrative staff and Airport c
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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