This essay focuses on Diversified Risk Stock Portfolio. For this case study, you will create a portfolio of five to eight stocks that demonstrate diversified risk. List the stocks along with their current price and previous 1-year and 5-year rates of return.
For this case study,
Firstly, you will create a portfolio of five to eight stocks that demonstrate diversified risk.
Secondly, List the stocks along with their current price and previous 1-year and 5-year rates of return. Below the list of stocks, address the issues described below.
Thirdly, Explain the difference between portfolio risk and stand-alone risk.
In addition, Briefly explain why you select each stock and how this investment portfolio would have less risk than selecting just one stock.
Moreover, How does risk aversion affect a stock’s require rate of return?
Additionally, Explain the distinction between a stock’s price and its intrinsic value.
Your case study should be at least two pages in length, not counting the title and reference pages.
You are require to cite and reference at least your textbook and stock data source.
Use APA format to cite in-text and reference citations.
Diversification is the practice of spreading your investments around so that your exposure to any one type of asset is limited.
This practice is design to help reduce the volatility of your portfolio over time.
One of the keys to successful investing is learning how to balance your comfort level with risk against your time horizon.
Invest your retirement nest egg too conservatively at a young age, and you run the risk that the growth rate of your investments won’t keep pace with inflation.
Conversely, if you invest too aggressively when you’re older, you could leave your savings exposed to market volatility, which could erode the value of your assets at an age when you have fewer opportunities to recoup your losses.
One way to balance risk and reward in your investment portfolio is to diversify your assets.
This strategy has many complex iterations,
at its root is the simple idea of spreading your portfolio across several asset classes.
Diversification can help mitigate the risk and volatility in your portfolio,
potentially reducing the number and severity of stomach-churning ups and downs.
Remember, diversification does not ensure a profit or guarantee against loss.
Stocks represent the most aggressive portion of your portfolio
provide the opportunity for higher growth over the long term.
However, this greater potential for growth carries a greater risk, particularly in the short term.
Because stocks are generally more volatile than other types of assets, your investment in a stock could be worth less if and when you decide to sell it.
Most bonds provide regular interest income and are generally considered to be less volatile than stocks.
They can also act as a cushion against the unpredictable ups and downs of the stock market, as they often behave differently than stocks.
Investors who are more focused on safety than growth often favor US Treasury or other high-quality bonds, while reducing their exposure to stocks.
These include money market funds and short-term CDs (certificates of deposit).
Money market funds are conservative investments that offer stability and easy access to your money, ideal for those looking to preserve principal.
In exchange for that level of safety, money market funds usually provide lower returns than bond funds or individual bonds.
Stocks issued by non-US companies often perform differently than their US counterparts, providing exposure to opportunities not offered by US securities.
If you’re searching for investments that offer both higher potential returns and higher risk, you may want to consider adding some foreign stocks to your portfolio.