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.
InvestingThe essence of risk-return tradeoff is embodied in the common phrase “no risk, no reward.”
Managing WealthMinimizing risk while maximizing return with the right mix of securities is the key to achieving your optimal asset allocation.
InvestingLearn the importance of the risk-return relationship in selecting a mutual fund.
InvestingCAPM helps you determine what return you deserve for putting your money at risk.
InvestingCAPM is a model that describes the relationship between risk and expected return.
Financial AdvisorDon't let "financial porn" steer you away from a sensible, long-term approach to investing.
InsightsThe efficient market hypothesis (EMH) suggests that stock prices fully reflect all available information in the market. Is this possible?