THE ROLE OF PORTFOLIO IN RISK REDUCTION THROUGH DIVERSIFICATION

After the financial crises that started in 2008 and the extraordinary losses implied, it's clear that investors, individuals and professionals, need more strategic-minded analyses of the global markets, more profiles of leading-edge investment strategists, more updates of the latest research studies that enhance our understanding of asset allocation, rebalancing and related subjects. Why it is important to focus on asset allocation and related portfolio management techniques and intelligence? Because asset allocation is the primary driver of investment results. If we analyse the last more than 50 years of portfolio theory and the real world situations we are offered a surprising amount of insight into what works and what doesn't when it comes to investing. Anyway, there are not secret formulas in asset allocation and investment, but there is a framework to consider, which is inspired by the modern portfolio theory, that was introduced by Harry Markowitz with his paper "Portfolio Selection," which appeared in the 1952 Journal of Finance. The issue of how investors can use diversification to optimize their portfolios is a central concern of portfolio theory. Diversification is about investors, which focus on selecting portfolios based on their overall risk-reward characteristics instead of merely compiling portfolios from securities that each individually have attractive risk-reward characteristics. Briefly, inventors should select portfolios, not individual securities.