Explain ability discriminate between investments in termes of their return, risk and liquidity charateristic?
Question:
How the large variety enhances the risk reduction effects of portfolio diversification?
The implications of the various investments for investment decision-making?
Answer:
Briefly
Inverstor circulstance - will effect liquidity more Ic more liquidity,
alternatively vice-versa
Alternate Invt: With certain exposure to a given asset class, investors feel the need for an alt.asset-class.
With more and more Investors, alt-asset-class is sure to hot up.
With more variety of exposure the risk is mitigated in the sense that your spread across various sector increases, so even if one investment under-performs the other average it out.
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