Question

What are the four basic steps involved in portfolio construction?

1) Asset allocation, Security selection, Risk management, Performance evaluation
2) Stock picking, Market timing, Diversification, Analysis
3) Buying low, Selling high, Tracking the market, Following trends
4) Luck, Intuition, Insider trading, Market manipulation

Answer 1

The four basic steps involved in portfolio construction are asset allocation, security selection, risk management, and performance evaluation.

Step-by-step explanation:

The four basic steps involved in portfolio construction are:

1. Asset allocation: This involves determining the proportion of your portfolio that should be invested in different asset classes, such as stocks, bonds, and cash. It is important to diversify your investments to manage risk and potentially increase returns.
2. Security selection: Once you have decided on the asset allocation, you need to select specific securities within each asset class. This can be done through research and analysis to identify securities that align with your investment goals and risk tolerance.
3. Risk management: This step involves implementing strategies to manage the risks associated with your investments. This may include setting stop-loss orders, using hedging techniques, or diversifying your portfolio.
4. Performance evaluation: Regularly monitoring and evaluating the performance of your portfolio is essential. This allows you to assess whether your investments are achieving your financial goals and make necessary adjustments if needed.