How to build an investment portfolio

The most common error when building a portfolio One of the most common mistakes when an individual investor build an investment portfolio with an objective other than to simply trade short-term in the financial markets with a few assets, is to keep on adding assets or products that are considered to be more suited at each outlook of financial markets, sector or asset.  The result of this is an aggregate of financial assets rather than an investment portfolio. In most cases, this is due to an unawareness of not only what a portfolio is but also that there is a methodology for building an...

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Risk and portfolio optimization models

One of the criticisms of traditional financial asset portfolio optimization models is the empirical evidence that asset class correlations are asymmetric, i.e., the behaviours among assets is different in bullish environments than in strongly bearish market environments. The fact that investors diversify their portfolios is a fundamental principle of Modern Portfolio Theory. However, there are some periods when diversification does not work as well as desirable. Numerous studies have shown evidence that there is an asymmetry due to increased correlation between assets in severe market downturns,...

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How we select the assets in our portfolio

What do you need to know before making the asset selection? Before selecting assets, you should know the level of risk you are able and willing to carry (your risk profile) and decide the amount of money you wish to invest. You must keep in mind that your investment will be in an environment of continuous fluctuations. You must set a long enough time horizon to be able to assume those fluctuations. The money you are going to invest must be your financial surplus that you are not going to need in case of unexpected events. You should select assets according to a defined strategy (including preferences...

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Balancing reason and emotion

To create an engagement between an individual investor and a financial investment, it is necessary to create an emotional connection. This emotional connection is complex and goes beyond expectations of returns or experiences of performance achieved. A key factor is the type of assets with which an investment strategy is implemented.  We introduce the concepts of a properly built portfolio and emotionally suitable portfolio. A well-built portfolio is mainly due to the adequacy of the risk level between this portfolio and the investor’s risk profile and to the selection of the most appropriate...

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