write a paragraph as a replay to each classmate post discuss their post for the topic ( Portfolio Theory )
Student 1:
This article talked about the importance of diversification in investing. The important thing
that I got out of this article is that you should only worry about yourself when it comes to
finances. It doesn’t matter if you can beat the market if you are losing out on your
investments in just single asset classes. Your investments should be well-diversified across
multiple asset classes to minimize your losses and that will be most beneficial to your future.
https://finance.yahoo.com/news/why-diversification-important-investing151822411.html (Links to an external site.)Links to an external site.
Student 2:
I found an article, Global equity investing: The benefits of diversification and sizing your
allocation, from Vanguard. I highly recommend everyone to read this article if you will. This
article defined the benefits of diversification and sizing your allocation, especially
international investment. The percentage of global market capitalization is the U.K of 5.4%,
Canada of 3.0%, and Australia of 2.1%. Obviously, domestic equities tend to be more
exposed to the narrower economic and market forces of home market. There are various
considerations many investors take when they are allocating their portfolio to internationals
equities, such as volatility reduction, implementation costs, taxes, regulation, of course their
own preferences.
The Article states out that simply focusing on domestic companies means an investor has no
stake in leading global companies that are domiciled outside their home market. Investments
in foreign markets are exposed to fluctuations in foreign exchange rates. Foreign exchange
can be a diversifier for an investor’s portfolio. A portfolio made up solely of domestic firms
is likely to have less-diversified sector exposures than the global equity market portfolio. A
primary change in the global equity market that has influenced global diversification is the
increase in average return correlations.
https://personal.vanguard.com/pdf/ISGGEB.pdf (Links to an external site.)Links to an
external site.
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