Question

Compare the asset allocation strategy and security selection strategy in the Investments. Compare the active security selection Investment strategy and the passive security selection Investment strategy?

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Answer 1

Asset allocation strategy and security selection strategy are highly important in investment management of an individual.

Asset allocation will be focusing upon allocating of the capital to different set of assets whereas security selection will be focused upon the identification of individual securities.

Asset allocation will be focusing upon high level of diversification whereas security selection will be focusing upon making a high rate of return.

Asset allocation strategy will be focusing upon selection of assets which are non correlated in nature so that will be offering a high level of diversity whereas security selection will be selecting all such assets which can have the potential of maximizing the rate of return of the portfolio.

Efficient market hypothesis will be advocating that asset allocation is more important than the security selection and it will be helping in selection of better portfolios.

2. Active security selection investment strategy will be focused upon selection of assets which are mostly based upon current market situation and formation of the portfolios which are continuously reshuffling themselves according to the market needs in order to beat the rate of return of the market

passive security selection investment strategy will be focusing upon high rate of diversification and it will focus upon replicating the index rate of return by copying the index

Passive rate of return will match the index rate of return whereas active rate of return will be either higher or lower than the market rate of return mostly

Active investment strategy will the selected by risk takers where is passive investment strategy will be adopted by risk-averse investors.