Financial Portfolio Development

This folder details decision chains for making a financial infrastructure in order for making a working credit chain.

This explores the pros and cons of various product offerings of financial and governance institutions.

A vast majority of the coontent is taken off Investopedia, and is only here to give a brief introduction to the subject matter.

Definition of a Financial Portfolio

A portfolio is a collection of financial investments like :

• stocks
• bonds
• commodities
• cash
• cash equivalents, including closed-end funds and exchange traded funds (ETFs)

People generally believe that stocks, bonds, and cash comprise the core of a portfolio. Though this is often the case, it does not need to be the rule. A portfolio may contain a wide range of assets including real estate, art, and private investments.

Basics of Portfolios

One of the key concepts in portfolio management is the wisdom of diversification — which simply means not putting all of your eggs in one basket. Diversification tries to reduce risk by allocating investments among various financial instruments, industries, and other categories. It aims to maximize returns by investing in different areas that would each react differently to the same event. There are many ways to diversify.

How you choose to do it is up to you. Your goals for the future, your appetite for risk, and your personality are all factors in deciding how to build your portfolio.

Regardless of your portfolio's asset mix, all portfolios should contain some degree of diversification, and reflect the investor's tolerance for risk, return objectives, time horizon, and other pertinent constraints, including tax position, liquidity needs, legal situations, and unique circumstances.

Portfolio Management

Portfolio management is the art and science of selecting and overseeing a group of investments that meet the long-term financial objectives and risk tolerance of a client, a company, or an institution.

Further read.

Modern Portfolio Theory

The modern portfolio theory (MPT) is a practical method for selecting investments in order to maximize their overall returns within an acceptable level of risk. This mathematical framework is used to build a portfolio of investments that maximize the amount of expected return for the collective given level of risk.

American economist Harry Markowitz pioneered this theory in his paper "Portfolio Selection," which was published in the Journal of Finance in 1952. He was later awarded a Nobel Prize for his work on modern portfolio theory.

A key component of the MPT theory is diversification. Most investments are either high risk and high return or low risk and low return. Markowitz argued that investors could achieve their best results by choosing an optimal mix of the two based on an assessment of their individual tolerance to risk.

Investors who are more concerned with downside risk might prefer the post-modern portfolio theory (PMPT) to MPT.

Downside risk - Downside risk is an estimation of a security's potential loss in value if market conditions precipitate a decline in that security's price. Depending on the measure used, downside risk explains a worst-case scenario for an investment and indicates how much the investor stands to lose. Downside risk measures are considered one-sided tests since the potential for profit is not considered.

Downside risk is an estimation of a security's potential loss in value if market conditions precipitate a decline in that security's price.

Downside risk is a general term for the risk of a loss in an investment, as opposed to the symmetrical likelihood of a loss or gain.

Some investments have an infinite amount of downside risk, while others have limited downside risk.

Examples of downside risk calculations include semi-deviation, value-at-risk (VaR), and Roy's Safety First ratio.