1. Summary#
Introduction
Financial goals; money; inflation (BC and inflation target);
Asset classes
Investing principles
Goals: …
Fundamentals: return, risk, risk-adjusted return
From 1-period to multi-period: volatility drag, composition-driven skewness,…
Principles: diversification, rebalancing,…
Rebalancing keeps the asset allocation (approximately) constant through time, preventing from single asset drift, and aiming at keeping the characteristics of the portfolio constant in time.
Diversification may improve the risk-adjusted return of the portfolio; under certain conditions, diversification may improve the return of the portfolio as well (both in terms of expected multi-period return and dispersion of the results)
Asset allocation (portfolio building and management).
Building: MPT and CAPM, Merton’s portfolio theory,…
Management: rebalancing,…