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Merton's portfolio problem. Merton's portfolio problem is a problem in continuous-time finance and in particular intertemporal portfolio choice. An investor must choose how much to consume and must allocate their wealth between stocks and a risk-free asset so as to maximize expected utility.
Modern portfolio theory (MPT), or mean-variance analysis, is a mathematical framework for assembling a portfolio of assets such that the expected return is maximized for a given level of risk. It is a formalization and extension of diversification in investing, the idea that owning different kinds of financial assets is less risky than owning ...
Having a moderate risk tolerance means you might be willing to deal with market volatility or a slightly greater chance of losing your stake for the opportunity to realize higher returns.
When I opened my IRA, I filled out a questionnaire that asked me about my age and my risk tolerance. Based on that information, the robo-advisor is investing my money automatically in a way that ...
Asset allocation. Asset allocation is the implementation of an investment strategy that attempts to balance risk versus reward by adjusting the percentage of each asset in an investment portfolio according to the investor's risk tolerance, goals and investment time frame. [1] The focus is on the characteristics of the overall portfolio.
“Risk tolerance is how much risk an investor can stomach,” says David Shotwell, president and certified financial planner at Shotwell Rutter Baer.. Advisors often ask clients to complete a ...
Registered investment adviser. A registered investment adviser (RIA) is a firm that is an investment adviser in the United States, registered as such with the Securities and Exchange Commission (SEC) or a state's securities agency. The numerous references to RIAs within the Investment Advisers Act of 1940 popularized the term, which is closely ...
In the case that an investor has invested all their funds, additional funds can be borrowed at risk-free rate and a portfolio combination that lies on R 1 PX can be obtained. R 1 PX is known as the Capital Market Line (CML). This line represents the risk-return trade off in the capital market. The CML is an upward sloping line, which means that ...