Optimal Portfolio Allocation: Balancing Risks for Maximum Returns

This lesson continues the discussion on money management, focusing on portfolio allocation and diversification. It covers how to allocate investments in equities, the importance of balancing portfolios, and the role of correlation in investment strategies. The lesson emphasizes the need for diversification across different asset classes, including international stocks and commodities, to mitigate risks and seize global opportunities. The session concludes by highlighting the significance of diversification in maintaining a balanced and risk-adjusted portfolio.

What are the three accounts into which income is divided according to the portfolio allocation theory?

• Savings, Investments, and Loans

• Investment, Liability, and Expenses

• Income, Savings, and Debt

• Assets, Liabilities, and Equity

Why is it important to diversify risk in a portfolio?

• To balance the portfolio and reduce risk

• To maximize returns from a single asset class

• To avoid investing in international markets

• To focus on local investment opportunities

What is the suggested percentage allocation for stocks in a diversified portfolio?

• 10%

• 20%

• 30%

• 50%

How does the correlation between bonds and stocks affect the stock market?

• Correlation only affects real estate investments

• No correlation affects stock prices

• Positive correlation leads to higher stock prices

• Negative correlation causes stock prices to fall when bond interest rates rise

Why is it important to invest in international stocks according to the diversification theory?

• To focus solely on South Korean stocks

• To increase investment in commodities

• To avoid local market risks

• To capitalize on global opportunities