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• The performance of the assets may vary from year to year and is not
easily predictable
• Mixture of assets becomes more like to meet the goals
• Fundamental idea: different asset classes offering non-correlated
returns (or inversely correlated) can be pooled together in a portfolio
for diversification …
• A good AA would reduces risks or variability of returns
• AA becomes ineffective if done within similar or correlated asset
classes
Equity 50%
7.5%
Return @ 15 %
Debt 50%
2.5%
Return @ 5 %
10%
Primary Focus …
Asset Allocation
Impact on Return in Long Term
Size Timing
Sector Selection
Stock Selection
Style Timing
Market Timing
Probability of Success
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Equities