The purpose of an investment portfolio: to make as much money as possible, while taking as little risk as you can get away with.
Because the financial world is overrun with the graduates of highfalutin business schools and holders of various math-based degrees, this general concept can't just stand at that. It has to get slathered with lots of complicated calculations and important-sounding jargon.
The ideas we noted above (maximizing returns and minimizing risk) contribute to a concept known as modern portfolio theory (jargon alert!). Meanwhile, the risk aspect gets measured in an equation tracking what's called variance (calculation alert!). Modern portfolio theory seeks to provide a mathematical description of the risk/reward balance inherent in any portfolio. That way, fund managers can crunch the numbers and see if they really have ample diversification. Portfolio variance measures this quality. It determines whether the assets in a portfolio are too closely correlated in performance to provide meaningful diversification.
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Finance: What is a Portfolio?7 Views
Finance allah shmoop What is a portfolio Well this is
an artist portfolio The clay ashtrays they did in preschool
for mom They're sketches of birds and whatever else they
could see out of their bedroom window and this hot
mess all part of their body of work All right
Moving on All right Now here's An investor's portfolio four
hundred shares a coke one hundred grand worth of corporate
bonds from comcast shell and mickey d's Two hundred fifty
shares of whatever dot com and a bunch of other
names in here Well the whole thing comprises the portfolio
of investments that mr and mrs jones air making to
you know hopefully be able to retire on what else
is in here while they're home It's probably worth eight
hundred grand Now that shoebox in palo alto subtract there
three hundred grand in mortgage and five hundred k is
thie equity value They have now in their homes Right
What else Here's a thousand shares of the awesome yield
mutual fund in twelve hundred chairs have show me the
money index fund added all up that's their investment portfolio
that's everything they own or have as invested in assets
So it's a portfolio a broad based one and a
more narrow based portfolio might be just a given mutual
or index fund with like a focus on investing or
just a collection of a dozen stocks they owned in
a brokerage account like this one Why so many eggs
or investments Well because diversity is a good thing when
it comes to investments usually anyway unless you're zuk r
bezos or larry sergei if you found it facebook or
amazon or google well and the world looks a little
bit different from fifty thousand feet up in the air
in your private jet But for normal people like us
you know who don't know much about investing in internet
stocks Well then a diverse portfolio spreads risk and volatility
And if you're careful about not spending too many of
your beans well you two can go off into the
sunset Living a nice retirement playing with your own yacht 00:01:58.049 --> [endTime] for his rubber duckie
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