Investors are concerned with holding an optimal portfolio. Consider the choices an investor can make. How...

Investors are concerned with holding an optimal portfolio. Consider the choices an investor can make. How will the portfolio choices differ for a conservative investor? What about an aggressive investor? Which type of investor would you most likely identify with? Give referrences

Expert Solution

According to Markovins Theory, The optimal portfolios referes to the portfolios that give higher return with minimum level of risk. Investors would like to obtain higher returns from the portfolios with minimum level of risk. So asset allocation is very important factor while investing. Asset allocation means investing in various asset classes such as stock , bond and cash. Investing in different asset classes will help to reduce the risk. Investing in various asset classes or securities is called diversification.

Investors have different attitude against risk . The risk profile or risk tolerance of investors will be different . There are three kinds of investors : conservative investor, aggressive investor and moderate investor. The risk torelance and time horizon will be different for these investors.

Conservative investors are the investors who are willing to take less risk. These type investors use a mix of stock and bonds. They would like to invest in fixed income or money market securities. The beta of conservative portfolios are less than one. The main goal of this type of investment is capital preservation and stability.

Aggressive investors are investors who are willing to take high risk. Aggressive investors choose 100% stock in their portfolios. The main goal of aggressive investors are wealth creation. Aggressive investors have a time horizon of more than 10 years. The beta of aggressive portfolio is greater than one. This investment is a longer time horizon investment and expecting higher returns with higher risk.

Moderate investors are investors who are willing to take medium risk and time horizon will be 5-10 years.

The old aged people with many children will like to a conservative investors. They would like to preserve the capital. but the young youth with lot of money will prefer to be an aggressive investor. Rakesh jhunjhunwala is an indian investor who is an aggressive investor and make huge profit out of his investments.

Moderate aggressive investors are more in different countries . The percentage of conservative investors are 10 to 15 % while aggressive investors are about 30 to 50%.

jeff jeffy answered 1 year ago

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