Asset allocation and Risk & Return

The video tutorial covers asset allocation, explaining it as a method to diversify an investment portfolio across various asset classes like stocks, bonds, and cash. It discusses factors affecting asset allocation, such as age, financial goals, and risk appetite. Different strategies like strategic, tactical, and dynamic asset allocation are explored. The tutorial also delves into risk and return, explaining systemic and unsystemic risks, and how to calculate returns, including nominal and real returns. The correlation between risk and return is highlighted, emphasizing the need to balance risk with desired returns.

What is the primary goal of asset allocation?

• To diversify investments across various asset classes

• To minimize investment costs

• To maximize returns by investing in a single asset class

• To focus solely on short-term gains

How does age influence asset allocation?

• Older investors tend to choose safer investments

• Older investors typically seek higher risk investments

• Younger investors prefer low-risk investments

• Age does not affect asset allocation

Which asset allocation strategy involves adjusting investments based on short-term market events?

• Dynamic asset allocation

• Tactical asset allocation

• Passive asset allocation

• Strategic asset allocation

What is systemic risk?

• Risk that can be easily avoided

• Risk that affects the entire market

• Risk related to management inefficiency

• Risk specific to a single company

How is Return on Investment (ROI) calculated?

• By adding the net profit to the cost of investment

• By multiplying the net profit by the cost of investment

• By dividing the net profit by the cost of investment

• By subtracting the cost of investment from the net profit

What is the difference between nominal and real returns?

• Both nominal and real returns account for inflation

• Real returns account for inflation, nominal returns do not

• Nominal returns account for inflation, real returns do not

• Neither nominal nor real returns account for inflation

What happens to purchasing power if inflation outpaces nominal returns?

• Purchasing power increases

• Purchasing power decreases

• Purchasing power remains the same

• Purchasing power is unaffected by inflation