Financial Concepts: Conclusion
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.
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