How does the creation of a portfolio reduce risk? What type of assets should be included...
How does the creation of a portfolio reduce risk? What type of assets should be included in a diverse portfolio? Why should they be included?
Homework Answers
Portfolio is a collection of different stocks and it reduce the risk of an investor because it is very less chance that all stocks perform bad some of the stocks will definitely fo well perform.
While creating portfolio it's should kept in mind that you should invest in diversified stock and diversified industry like Finance,Retail, Technology, Real-Estate etc.
When you include diversified stocks in your portfolio then it reduce the risk because if one stock will underperform then another will perform well and it will compensate the loss of other. In the same way if there is recession in country and retail segment is not performing well then it's may be that Technology/Finance will perform good.
I hope this clear your doubt.
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