Investing & Markets

Own assets that compound

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Concept 16 of 21

framework

Modern portfolio theory

Mix uncorrelated assets so the portfolio swings less than its parts, for the same expected return.

Definition

A framework that builds portfolios by combining assets to maximise expected return for a given level of risk, where risk is measured as the variance of returns.

Step 1

Predict first

In one or two sentences, what do you think this concept means? Wrong is fine; the small struggle is what makes the answer stick.