About Me
Chartered Financial Analyst (CFA)
1 Ethical and Professional Standards
1-1 Code of Ethics
1-2 Standards of Professional Conduct
1-3 Guidance for Standards I-VII
1-4 Introduction to the Global Investment Performance Standards (GIPS)
1-5 Application of the Code and Standards
2 Quantitative Methods
2-1 Time Value of Money
2-2 Discounted Cash Flow Applications
2-3 Statistical Concepts and Market Returns
2-4 Probability Concepts
2-5 Common Probability Distributions
2-6 Sampling and Estimation
2-7 Hypothesis Testing
2-8 Technical Analysis
3 Economics
3-1 Topics in Demand and Supply Analysis
3-2 The Firm and Market Structures
3-3 Aggregate Output, Prices, and Economic Growth
3-4 Understanding Business Cycles
3-5 Monetary and Fiscal Policy
3-6 International Trade and Capital Flows
3-7 Currency Exchange Rates
4 Financial Statement Analysis
4-1 Financial Reporting Mechanism
4-2 Income Statements, Balance Sheets, and Cash Flow Statements
4-3 Financial Reporting Standards
4-4 Analysis of Financial Statements
4-5 Inventories
4-6 Long-Lived Assets
4-7 Income Taxes
4-8 Non-Current (Long-term) Liabilities
4-9 Financial Reporting Quality
4-10 Financial Analysis Techniques
4-11 Evaluating Financial Reporting Quality
5 Corporate Finance
5-1 Capital Budgeting
5-2 Cost of Capital
5-3 Measures of Leverage
5-4 Dividends and Share Repurchases
5-5 Corporate Governance and ESG Considerations
6 Equity Investments
6-1 Market Organization and Structure
6-2 Security Market Indices
6-3 Overview of Equity Securities
6-4 Industry and Company Analysis
6-5 Equity Valuation: Concepts and Basic Tools
6-6 Equity Valuation: Applications and Processes
7 Fixed Income
7-1 Fixed-Income Securities: Defining Elements
7-2 Fixed-Income Markets: Issuance, Trading, and Funding
7-3 Introduction to the Valuation of Fixed-Income Securities
7-4 Understanding Yield Spreads
7-5 Fundamentals of Credit Analysis
8 Derivatives
8-1 Derivative Markets and Instruments
8-2 Pricing and Valuation of Forward Commitments
8-3 Valuation of Contingent Claims
9 Alternative Investments
9-1 Alternative Investments Overview
9-2 Risk Management Applications of Alternative Investments
9-3 Private Equity Investments
9-4 Real Estate Investments
9-5 Commodities
9-6 Infrastructure Investments
9-7 Hedge Funds
10 Portfolio Management and Wealth Planning
10-1 Portfolio Management: An Overview
10-2 Investment Policy Statement (IPS)
10-3 Asset Allocation
10-4 Basics of Portfolio Planning and Construction
10-5 Risk Management in the Portfolio Context
10-6 Monitoring and Rebalancing
10-7 Global Investment Performance Standards (GIPS)
10-8 Introduction to the Wealth Management Process
10.4 Basics of Portfolio Planning and Construction

10.4 Basics of Portfolio Planning and Construction - 10.4 Basics of Portfolio Planning and Construction

Key Concepts

Asset Allocation

Asset Allocation is the process of distributing investments across different asset classes such as stocks, bonds, and cash. The goal is to balance risk and reward based on an individual's financial goals and risk tolerance.

Example: A young investor with a high risk tolerance might allocate 70% of their portfolio to stocks for potential high returns, 20% to bonds for stability, and 10% to cash for liquidity.

Diversification

Diversification involves spreading investments across various assets to reduce risk. By not putting all your eggs in one basket, you can mitigate the impact of poor performance in any single asset.

Example: Instead of investing all your money in one company's stock, you could spread your investments across multiple sectors (technology, healthcare, finance) and geographies (domestic and international markets).

Risk Tolerance

Risk Tolerance is an investor's ability and willingness to withstand fluctuations in the value of their investments. It is influenced by factors such as age, financial stability, and investment goals.

Example: A retiree with limited income sources might have a low risk tolerance and prefer a portfolio heavily weighted in bonds and cash, while a young professional might have a high risk tolerance and opt for a more aggressive stock-heavy portfolio.

Investment Horizon

Investment Horizon is the length of time an investor plans to hold their investments before needing the funds. Longer horizons generally allow for more risk-taking, while shorter horizons require more conservative strategies.

Example: An investor planning to buy a house in five years might have a short investment horizon and choose low-risk investments like bonds, while someone saving for retirement 30 years away might invest in stocks for long-term growth.

Rebalancing

Rebalancing involves periodically adjusting the portfolio to maintain the desired asset allocation. This helps to manage risk and ensures that the portfolio remains aligned with the investor's goals.

Example: If a portfolio initially allocated 60% to stocks and 40% to bonds, but stocks have outperformed and now represent 70% of the portfolio, the investor might sell some stocks and buy bonds to return to the original allocation.

Performance Evaluation

Performance Evaluation is the process of assessing how well a portfolio is meeting its investment objectives. This involves comparing the portfolio's returns to benchmarks and evaluating the risk-adjusted performance.

Example: An investor might compare their portfolio's annual return to the S&P 500 index to see if their investments are outperforming or underperforming the market. They might also use metrics like the Sharpe Ratio to evaluate risk-adjusted returns.

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