Financial Concepts: Conclusion

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We hope that this has given you some insight into the market and your investment strategies. Let's recap what we've learned in this tutorial:
  • The risk/return tradeoff is the balance between the desire for the lowest possible risk and the highest possible return.
  • Higher risk equals greater possible return.
  • Diversification lowers the risk of your portfolio.
  • Dollar cost averaging is a technique by which, regardless of the share price, a fixed dollar amount is invested on a regular schedule.
  • Asset allocation divides assets among major categories in order to create diversification and balance the risk.
  • Random walk theory says that stocks take a random and unpredictable path.
  • Efficient Market Hypothesis (EMH) says it is impossible to beat the market because prices already incorporate and reflect all relevant information.
  • The concept of the optimal portfolio attempts to show how rational investors will maximize their returns for the level of risk that is acceptable to them.
  • Capital asset pricing model (CAPM) describes the relationship between risk and expected return and serves as a model for the pricing of risky securities.




by

Investopedia Staff

Investopedia Staff
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