Week 5 – Final Project – Construct a well-diversified portfolio
BUS405: Principles of Investments
A broad and diverse investment portfolio requires asset allocation and security selection. The investor should also have a risk tolerance.
“A person with less tolerance for risk – a retiring person for instance – would not like to invest his/her made money into an asset class which is considered unpredictable or fickle. Whereas a person who has a long way to go can tolerate unpredictability well because it is likely that his/her returns over the next 20 years will go uphill” (Adam Lewis, 2012).
Therefore, the decisions of my parents and me will be very different from each other in this regard. Every investor should determine himself what is right for him. A bigger risk can sometimes give massive returns. This is known as risk for a reason.
I have always been a calculated risk taker. Now at the age of 46 years, I have the ability to earn much over the next 20 years. I usually choose the conventional investment approaches as they keep my IRR at a 4.0 or more. I want to purchase foreign stocks and new markets because they have the ability to progress. Furthermore, if something like the recession of 2007-08 occurs, I would be able to recover my loss as my age is not that much. The foreign markets are unpredictable. Keeping this in mind I have allocated my assets like this: Corporate Bonds, Common Stocks, Exchange Traded Funds, and Real Estate Investment Trusts with more attention towards domestic bonds.