Stock Jobs Portfolio Management

Question 1

What is 'asset allocation' in portfolio management?

Accepted Answer

Distributing investments across different asset classes like stocks, bonds, and cash based on goals and risk tolerance

Answer

Asset allocation is the strategic decision of how to divide a portfolio among different asset classes to balance risk and reward based on an investor's time horizon and goals.

Question 2

What is 'diversification' in investing?

Accepted Answer

Spreading investments across multiple assets to reduce exposure to any single investment's risk

Answer

Diversification reduces risk by spreading investments across different assets, sectors, and geographies so poor performance in one area does not devastate the whole portfolio.

Question 3

What is 'rebalancing' a portfolio?

Accepted Answer

Periodically adjusting portfolio holdings back to target allocations as market movements cause drift

Answer

Rebalancing restores a portfolio to its target asset allocation by buying or selling holdings that have grown or shrunk beyond desired proportions due to market movements.

Question 4

What is 'systematic risk' (also called market risk)?

Accepted Answer

Risk inherent to the entire market or economy that cannot be eliminated through diversification

Answer

Systematic risk affects the entire market and cannot be diversified away, including risks from economic recessions, interest rate changes, and geopolitical events.

Question 5

What is 'Modern Portfolio Theory' (MPT)?

Accepted Answer

A framework by Harry Markowitz showing how to construct portfolios to maximize return for a given level of risk

Answer

MPT, developed by Harry Markowitz in 1952, demonstrates that investors can construct portfolios to maximize expected return based on a given level of market risk through diversification.

Stock Jobs Practice Test

Stock Jobs Practice Test

Stock Jobs Portfolio Management