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Старый 14.09.2020, 12:34   #1
nobileprize55
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По умолчанию The importance of asset class allocation

Underperformance raises the question, if the US Equity Growth Fund does not equal or beat the Russell 3000 Growth Index, what value has the investment management added to justify its fees? Simply buying the indicator is perhaps more beneficial.

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Moreover, studies show that there is a significant correlation between returns earned by investors and the performance of the underlying asset class. For example, the overall performance of a US bond fund or portfolio is very similar to the Lehman Aggregate Bond Index, increasing and decreasing in tandem. This demonstrates that, since returns are expected to mimic an asset class, choice of asset class is much more important than market timing and individual asset choice. Brinson and Beebower concluded that market timing and individual asset selection account for only 6% of the variance in returns, with strategy or asset class making up the balance.

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diversification

Breakdown of factors that account for variance in portfolio returns. Image copyright Sabrina Jiang © Investopedia 2020

Wide diversification across multiple asset classes

Many investors do not really understand effective diversification, often believing that they are quite diversified after dividing their investments across large, medium and small stocks; Energy stocks, finance, healthcare, or technology; Or even investing in emerging markets. However, in reality, they have only invested in multiple sectors of the equity asset class and are vulnerable to ups and downs with this market.

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If we look at the Morningstar pattern indices or their respective sector indices, we will see that despite the slightly variable returns, they generally track together. Do not tend to see this synchronized directional movement. Therefore, it is only when positions are held across many unrelated asset classes that the portfolio is truly diversified and better able to handle market fluctuations, as high-performing asset classes can offset the underperforming classes.





The main gaps

There is a significant correlation between the returns that investors make on their holdings and the performance of the underlying asset class for those holdings.

True portfolio diversification is achieved through selecting and holding a variety of asset classes, rather than by picking out individual stocks and market timing.

Perfect asset allocation is not static. Asset performance and their relationships to each other change, so monitoring and reorganization are imperative.

Effective diversification will include asset classes with diversified risk profiles held in different currencies.

The hidden link between asset classes

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An effectively diversified investor remains vigilant and vigilant because the relationship between categories can change over time. International markets have always been the key to diversification. However, there has been a marked increase in the correlation between global stock markets gradually in the late twentieth century and early twenty-first century. It began to develop among European markets after the formation of the European Union - in particular, the creation of the single European market in 1993 and the euro in 1999.5 During the first decade of the twenty-first century, emerging markets became more connected to the US and UK markets, reflecting the large degree of investment. And the financial development of these economies.

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Perhaps most disturbing is the increase in what was originally an invisible link between fixed income and stock markets, which has traditionally been the mainstay of diversification of asset classes. The growing relationship between investment banking and structured finance may be the cause, but on a broader level, the growth of the hedge fund industry could also be a direct cause of the growing correlation between fixed income and equities as well as other smaller asset classes. For example, when a large multi-strategy global hedge fund incurs losses in one asset class, margin calls may force it to sell assets in all areas, generally affecting all other classes in which it has invested.



The bottom line

All too often, private investors get stuck picking stocks and trading - activities that are not only time consuming, but can also be stressful. It may be helpful - and less resource-intensive - to take a closer look and focus on asset classes. With this holistic view, the individual investor's investment decisions are simplified, and may be more profitable.

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Старый 22.09.2020, 15:19   #2
nobileprize55
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По умолчанию Understanding Modern Portfolio Theory (MPT)

Understanding Modern Portfolio Theory (MPT)

Modern portfolio theory argues that the risk and return characteristics of an investment should not be considered separately, but should be judged by how the investment affects the overall risk and return of the portfolio. MPT shows that an investor can create a portfolio of multiple assets that maximizes returns for a given level of risk. Likewise, given the desired level of expected return, an investor can build a portfolio with the lowest possible risk. Based on statistics such as variance and correlation, the performance of individual investments is less important than how they affect the entire portfolio.

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MPT assumes that investors are risk averse, that is, they prefer a less risky portfolio to a more risky one for a given level of return. In practice, risk aversion implies that most people must invest in multiple asset classes.



The expected portfolio return is calculated as the weighted sum of the individual asset returns. If a portfolio contains four equally weighted assets with expected returns of 4, 6, 10, and 14%, the expected portfolio returns are:

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(4% x 25%) + (6% x 25%) + (10% x 25%) + (14% x 25%) = 8.5%



Portfolio risk is a complex function of the variance of each asset and the correlation of each pair of assets. To calculate the risk of a portfolio with four assets, an investor needs the variance of each of the four assets and six correlation values, since there are six possible combinations of two assets with four assets. Because of asset correlation, the overall portfolio risk or standard deviation is lower than what would be calculated using a weighted sum.

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Benefits of Modern Portfolio Theory (MPT)

MPT is a useful tool for investors trying to build diversified portfolios. In fact, the rise of exchange-traded funds (ETFs) has made the MPT more relevant by giving investors easier access to various asset classes. Equity investors can use the MPT to mitigate risk by placing a small portion of their portfolios in government bond ETFs. Portfolio variance will be significantly lower as government bonds are negatively correlated with stocks. Adding a small investment in Treasury bonds to a portfolio of stocks will not have much of an impact on expected returns due to this loss-reducing effect.



Similarly, MPT can be used to reduce the volatility of a US Treasury portfolio by investing 10% in a small-cap index fund or ETF. While small-cap stocks are much more risky than Treasury bonds themselves, they often do well during periods of high inflation when bonds perform poorly. As a result, the overall volatility of the portfolio is lower than the portfolio of all government bonds. In addition, the expected return is higher3.

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Modern portfolio theory allows investors to build better performing portfolios. Every possible combination of assets that exist can be plotted with portfolio risk on the X-axis and expected returns on the Y-axis. This plot reveals the most desirable portfolios. For example, suppose portfolio A has an expected return of 8.5% and a standard deviation of 8%. Further, assume that portfolio B has an expected return of 8.5% and a standard deviation of 9.5%. Portfolio A will be considered more efficient because it has the same expected return but less risk.



An upward curve can be drawn to connect all the top performing portfolios. This curve is called the effective frontier. Investing in a portfolio below the curve is undesirable because it does not maximize returns for a given level of risk.

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Most performance frontier portfolios contain ETFs from more than one asset class.

Critique of Modern Portfolio Theory (MPT)

Perhaps the biggest criticism of the MPT is that it evaluates portfolios based on variance rather than downside risk. According to modern portfolio theory, two portfolios with the same level of variance and return are considered equally desirable. One portfolio can have this variance due to frequent small losses. On the contrary, another may have such a difference due to rare spectacular falls. Most investors would prefer frequent small losses that are easier to bear. Postmodern Portfolio Theory (PMPT) attempts to improve modern portfolio theory by minimizing the risk of deterioration instead of variance.



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Старый 23.09.2020, 13:37   #3
nobileprize55
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По умолчанию Active portfolio management

Active portfolio management

An investor who follows an active portfolio management strategy buys and sells stocks in an effort to outperform a specific index, such as the S&P 500 or Russell 1000 Index.



An actively managed investment fund has an individual portfolio manager, co-managers or a team of managers who make investment decisions for the fund. The success of the fund relies on in-depth research, market forecasting, and the expertise of the management team.



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Portfolio managers engaged in active investing keep track of market trends, shifts in the economy, changes in the political landscape, and any other factors that may affect specific companies. This data is used to time the assets are bought or sold.



Proponents of active management claim that these operations will lead to higher returns than can be achieved simply by simulating stocks listed on the index.

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Since the goal of a portfolio manager in an actively managed fund is to beat the market, this strategy requires that you assume greater market risk than is required to manage a passive portfolio.

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Passive portfolio management is also known as index fund management.

Negative portfolio management

Passive portfolio management is also referred to as index fund management.



The portfolio is designed to match the returns of a particular market benchmark as closely as possible. For example, every stock listed on the index is weighted. That is, it represents a percentage of the index proportional to its size and influence in the real world. The index wallet builder will use the same weights.

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The purpose of managing negative portfolio is to generate a return similar to the chosen index.

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A passive strategy does not have a management team making investment decisions and can be structured as an ETF, mutual fund, or trust investment unit.



Index funds are classified as passively managed rather than unmanaged because each has a portfolio manager responsible for replicating the index.



Since this investment strategy is not proactive, estimated management fees on passive portfolios or funds are often much lower than active management strategies.



Mutual index funds are easy to understand and offer a relatively safe approach to investing in broad sectors of the market.

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Старый 24.09.2020, 13:08   #4
nobileprize55
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По умолчанию Understanding the ideal number of stocks in a portfolio

Investors diversify their capital into many different investment vehicles to minimize their exposure to risk. In particular, diversification allows investors to reduce their exposure to so-called ad hoc risk, which can be defined as the risk associated with a particular company or industry.

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Investors cannot diversify systematic risk, such as the risk of an economic recession that will drag the entire stock market down, but academic research in modern portfolio theory has shown that a well-diversified stock portfolio can effectively reduce non-systematic risk to near zero levels while maintaining the same expected level. return, which would have a portfolio with excess risk.

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In other words, although investors must accept higher systematic risk for the sake of potentially higher returns (known as a trade-off between risk and return), they generally do not take advantage of the increased potential for return due to non-systematic risk.



The more stocks you have in your portfolio, the less you are exposed to random risk. A portfolio of 10 stocks, especially from different sectors or industries, is much less risky than a portfolio of two stocks.



Of course, the transaction costs associated with holding more shares can increase, so it is usually optimal to keep the minimum number of shares necessary to effectively eliminate their ad hoc risk exposure. What is this number? There is no consensus, but there is a reasonable range.

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For investors in the United States, where stocks move on their own (less correlated with the market as a whole) than elsewhere, the number is between 20 and 30 stocks. The predominant research in this area was conducted before the online investing revolution (when fees and transaction costs were much higher), and most research papers range from 20 to 30.

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A well-diversified stock portfolio can effectively reduce ad hoc risk to near zero while maintaining the same expected rate of return as an excess risk portfolio would have.

More recent research suggests that investors taking advantage of the low transaction costs provided by online brokers can best optimize their portfolios by holding around 50 shares, but again there is no consensus.



Please be aware that these statements are based on past historical data for the stock market as a whole and therefore do not guarantee that the market will perform exactly the same over the next 20 years as it did over the past 20 years.



However, as a rule of thumb, most investors (retail and professional) hold at least 15 to 20 shares in their portfolios. If you are intimidated by the idea of researching, selecting and maintaining awareness of about 20 or more stocks, you may want to consider using index funds or ETFs to provide quick and easy diversification across different sectors and market cap groups as these investments Vehicles allow you to buy a basket shares in one transaction.

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The number of shares in a portfolio is irrelevant in itself. This is because a portfolio can be concentrated across multiple industries rather than spread across the entire spectrum of sectors. In this case, you can own dozens of shares and still not diversify. On the other hand, if stocks were diversified across a wide range of industries, two or three dozen would be sufficient. The correct choice of stock is also of great importance here. This usually helps to focus on the stronger players in each industry to take advantage of the potential that each industry provides. Look at the components of the Dow Jones Industrial Average: these are the 30 most famous names in the US corporate world.

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Старый 13.11.2020, 11:03   #5
vasya89
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По умолчанию

привет всем))
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Старый 26.11.2020, 22:57   #6
Big Bat
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По умолчанию

спам
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Старый 21.06.2021, 11:20   #7
Юрий Слюсаренко
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По умолчанию

да реальный спам
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