investment Flashcards by Arlyn Petri

Spreading investments across different asset classes to reduce risk

Diversification

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Investing in different geographic regions or countries

Geographic Diversification

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Within the equity portion of a portfolio, investing in different industries and sectors

Industry and Sectors Diversification

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Holding a variety of individual stocks or securities within each asset class

Company-Specific Diversification

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Diversification should be tailored to an investor’s risk tolerance and time horizon

Risk Tolerance and Time Horizon

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When one asset performing poorly, and another may be performing well, helping to offset losses

Inverse Correlations

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Spreading investments across different asset classes to reduce risk

Diversification

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7 Key Aspects of Diversification:

Diversifying across various asset classes such as stocks, bonds

Asset Classes

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Diversification can help smooth out the volatility of a portfolio

Reducing Volatility

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This involves establishing a long-term investment portfolio aligned with an investor’s financial goals.

Strategic Asset Allocation

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Involves making short to medium-term adjustments to a portfolio’s asset allocation based on current market conditions.

Tactical Asset Allocation

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Combines elements of both SAA & TAA by having a stable core portfolio with an actively managed satellite position

Core-Satellite Approach

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Practice of buying and selling financial instruments on a worldwide scale.

Investing in a Global Market

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10 Terminologies Related to Global Investing:

The rate at which currency can be exchanged for another

Foreign Exchange Rates (Forex)

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Strategy of spreading investments across different countries or regions to reduce risks

International Diversification

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Developing countries with rapidly growing economies but often characterized by higher risk compared to more established market

Emerging Markets

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Countries with well-established economies, financial markets, and infrastructures

Developed Markets

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Investments in stocks or equities from companies around the world

Global Equity

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Bonds issued by foreign governments or companies

International Bonds

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A certificate issued by a U.S. bank representing shares in a foreign stock traded on U.S exchanges

American Depository Receipt (ADR)

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Risk of potential financial loss due to changes in exchange rates

Currency Risk

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Political instability in a country could negatively impact the value of investments in that country

Political Risk

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Investment strategy that seeks to profit from large-scale economic and geopolitical events.

Global Marco Strategy

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10 Types of Investment Vehicles:

Represents ownership in a company

Stocks

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Debt securities issued to raise capital

Bonds

Pool money from multiple investors to invest in a diversified portfolio

Mutual Funds

Investment funds that are traded on stock exchanges similar to individual stocks

Exchange Traded Funds

Companies that own, operate, or finance income-generating real estate across various sectors

Real Estate Investment Trusts (REITs)

Financial derivatives that give the holder the right but not the obligation to sell

Options

Agreements to buy or sell an asset at a predetermined price on a specified future date

Future Contracts

Gold, silver, oil, or agricultural products.

Commodities

Time deposits offered by banks with a fixed interest rate and maturity date

Certificate of Deposits (CDs)

Provide a safe place to store money and earn interest. Highly liquid

Savings Account

7 Critiquing the Performance of the Global Investment Portfolio: Market Conditions: Assess how global economic conditions during the period influenced the overall market. GDP growth and Inflation rates

Marco-Economic Factors

Evaluate the performance in the context of broader market trends

Market Trends

Assess whether the portfolio’s RRP aligns with investors' objs

Risk Return Profile (RRP)

Calculate the overall ROI for the portfolio over specified period

Return on Investment

A lower volatility indicates a more stable investment

Volatility

Assess the risk-adjusted performance

Sharpe Ratio

Ensure that the portfolio aligns with the investor’s goals

Portfolio Rebalancing

Evaluate the performance against a relevant benchmark

Active Management

Examine how well portfolio managed

Liquidity Management

How effectively portfolio manager communicate with investors during volatile periods

Communication with Investors

Consider any changes in regulatory environments

Regulatory Changes

If the portfolio includes international investments, assess the impact of currency fluctuations on overall performance

Currency Risk

An indicator, marker, or measurement of anything

Index

First security market indicator in history, released in 1884

Dow Jones Average

9 Roles of Security Market Indexes: Indexes act as benchmarks against which the performance of individual securities can be compared

Benchmarking Performance

Changes in the value of an index over time reflect the overall trend in the market or sector it represents

Measuring Market Trends

Focus on specific sectors of the economy

Sector Representation

Used as the basis for investment products such as ETFs

Investment Products

Use indexes to manage and assess risk

Risk Management

To analyze historical trends, correlations, and other statistical measures that help in making predictions about future market movements

Market Analysis

Provide a way to compare the performance of different global markets

Global Comparisons

Indicative of the overall economic health of a country

Indicator of Economic Health

Guide for constructing and managing investment portfolios

Portfolio Management

3 Index Weighting Methods: The stocks are weighted based on their individual prices

Price-Weighted Index

Stocks are weighted based on their market capitalization

Market Cap-Weighted Index

Implication for Index Performance: Market cap-weighted indices allocate more weight to big companies

Diversification

Price-weighted indices inherently provide greater diversification

Volatility

Price-weighted indices may exhibit a bias towards high-price stocks

Bias

Value of money in the present

Present Value

Value of money that will be impactful in the future

Future value

The highest price a buyer will pay to buy

Bid

Diversification of your instruments into different assets

Asset Diversification

Sector diversifying investments across different sectors of a company

Sector Diversification

Buy and hold strategy

Long-term focus

Tailored to match the investor's

Risk Tolerance Matching

allows for flexibility in adjusting the portfolio's asset

Dynamic Adjustment

consists of a diversified, long-term portfolio

Core portfolio

investment Flashcards

(70 cards)