Risk-return
trade-off - Risk and Return requirements of the Investor.
1.
Investors seeking a high rate of return for their portfolios can hold
a dominant portion in growth assets, which provide a high return, but
also feature higher risk.
2
. Investors seeking a low level of risk in their portfolios can
primarily choose income assets, which also provide a low level of
return.
3
. The portfolio of an investor is optimised when he invests in
products with the lowest level of risk for a given level of return;
or one with the highest level of return for a given level of risk.
4.
The investor's risk appetite and the level of downside risk he is
willing to take, is a critical component of portfolio construction.
5.
Asset allocation is the formal process of constructing a portfolio
that meets the risk and return requirements of the investor.
Courtesy
: Centre for Investment Education and Learning (CIEL).
Contributions
by Girija Gadre, Arti Bhargava and Labdhi Mehta.
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