Question 1. This assignment is concerned with understanding of the key issues relative to portfolio analysis and investment. In completing this assignment you are to limit your scope to the US stock markets only. Use the the Internet, and other resources to write a 2-page essay which you will use with new clients of your financial planning business which addresses the following issues and/or practices:
How individual investors make investment decisions in practice rather than in theory; and
How investors manage their funds/savings/ investments in light of current stock markets.
In your response, build upon extant portfolio theory and make sure to talk about different types of risks that investors might face and how they go about managing such risks. This means you need to consider topics such as efficient frontier and optimal portfolios; as well their relevance to investment theory. Furthermore, given the nature of the assignment, avoid bringing the brokerage industry into your discussion. In other words, assume you can invest directly in the stock market and do not need any financial intermediaries like brokerage houses.
Question 2. According to portfolio theory, people should hold more than one asset (or investment) in their portfolios. The idea is that if some investments do poorly, other investments in the portfolio can compensate for the poor investments. Some experts claim, however, that not all people in a society follow this prescription. In other words, not everyone will diversify and, in fact, many hold only one single asset or investment. For this you are to briefly address each of the following:
Is such a claim true or false? Explain. (1 to 2 Paragraphs)
Who, or what group(s), if any at all, might not want to spread his/her risks and diversify? Why or why not? (1 to 2 paragraphs)