• Subject Name : Accounting & Finance

Answer

The given investor is supposed to be my Uncle, who is not so much as a risk taking investor according to his risk profile,

There are many fundamental concepts which is required to be understood by him in order to implement an optimal portfolio. Markowitz's method for portfolio construction has been used in order to analyze optimal portfolio results. The risk free rate is considered to be 8 percent. It is expected that the portfolio will exceed market returns, though the sharp ratio of the portfolio is on the lower side. The standard deviation is also on the lower side, which can be said that the volatility is also on the lower side. The confidence level is taken as 95 percent (Ershadi et al., 2020). The overall returns of a fund or any other investment are the most important thing to look at when judging it. People generally agree that the measure in question is useful, but it shouldn't be used as the only way to judge investments.

Risk-adjusted returns are a different way to figure out how well something is doing. All investments have risks that come with them, and the allocation of an investor's portfolio depends on how much risk he or she is willing to take. Investors usually take risks in hopes of getting returns that are higher than the market's results. No one makes an investment choice on their own. The way markets work is always changing because of things like volatility and how buyers act. Because financial action is always changing, the riptide has both opportunities and risks. For investors to make the best choices about where to put their money, they need an objective way to compare results to the amount of risk involved.

For example, if a high-risk investment beats a low-risk choice, the risk-adjusted return of the high-risk investment may suggest that the extra returns may not be worth the extra risk. Investors who have a longer time frame for their investments may be more willing to take on investments with higher levels of risk or volatility. This is because they can deal with slow economic cycles and the inevitable changes in the financial markets. High-risk investments tend to have lower returns on top of what was expected, while low-risk investments that do better than expected may be seen as more useful.

Asset allocation is a way for many buyers to spread their money across different types of assets. But some buyers choose not to do that. For example, a 25-year-old saving for retirement might want to put all of their money into stocks, while a family saving for a down payment on a house might want to put all of their money into cash equivalents. Both of these could be good asset allocation plans, depending on the situation. But neither of these strategies tries to lower risk by owning different types of assets.

A well-balanced portfolio should have a mix of assets from different categories as well as assets from the same categories. So, in addition to dividing the investments between stocks, bonds, cash equivalents, and maybe even other types of assets, one will also need to spread them out within each type of asset. The key is to find investments in parts of each asset group that might do differently depending on how the market is doing.

It is recommended that the uncle should try to put together a portfolio that matches his investment strategy and how much risk they are willing to take. When investors use risk-adjusted returns, they can compare investments with different amounts of risk side by side. This method makes it easier to figure out the best investment based on the investor's desire for higher returns and their willingness to take risks (Kevin, 2022).

References

Hoffmann, D., Ahlemann, F., & Reining, S. (2020). Reconciling alignment, efficiency, and agility in IT project portfolio management: Recommendations based on a revelatory case study. International journal of project management , 38 (2), 124-136.

Khan, A. H., Cao, X., Katsikis, V. N., Stanimirović, P., Brajević, I., Li, S., ... & Nam, Y. (2020). Optimal portfolio management for engineering problems using nonconvex cardinality constraint: A computing perspective. IEEE Access , 8 , 57437-57450.

Ershadi, M., Jefferies, M., Davis, P., & Mojtahedi, M. (2020). Towards successful establishment of a project portfolio management system: business process management approach. The Journal of Modern Project Management , 8 (1).

Kevin, S. (2022). Security analysis and portfolio management. PHI Learning Pvt. Ltd..

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