Financial Knowledge

Asset Allocation & Risk

This section summarizes diversification and asset allocation, rebalancing, risk measures such as volatility, maximum drawdown and the Sharpe ratio, market, credit and liquidity risk, investment profiles and risk grades, and the psychological traps investors commonly fall into. It explains general concepts and does not recommend any particular product or investment strategy.

52 questions · Last updated

  1. 01Why are investors told to diversify?
  2. 02Doesn't diversification lower returns?
  3. 03How many stocks do I need to hold to be diversified?
  4. 04Why is it important to mix assets that move differently?
  5. 05What is asset allocation?
  6. 06Does diversification prevent losses?
  7. 07What is modern portfolio theory?
  8. 08What is the efficient frontier?
  9. 09How do systematic and unsystematic risk differ?
  10. 10What does beta (β) mean?
  11. 11What is alpha (α) in fund performance?
  12. 12What is the Sharpe ratio and how is it interpreted?
  13. 13How does the Sortino ratio differ from the Sharpe ratio?
  14. 14What is volatility and how is it measured?
  15. 15What is maximum drawdown (MDD)?
  16. 16What is VaR (Value at Risk)?
  17. 17What is tail risk?
  18. 18What is rebalancing?
  19. 19What happens if I don't rebalance and just leave my portfolio alone?
  20. 20What are the effects of regular (installment) investing?
  21. 21Does 'market timing' (buying low and selling high) work?
  22. 22What is the 'buy and hold' approach?
  23. 23How do passive and active investing differ?
  24. 24What does the efficient market hypothesis mean for investing?
  25. 25What is market risk?
  26. 26What is credit risk?
  27. 27What is liquidity risk?
  28. 28What is interest rate risk?
  29. 29Do leveraged products concentrated in a single stock offer the benefits of diversification?
  30. 30What factors determine a product's risk grade?
  31. 31How are risk grades assigned to private funds?
  32. 32How are investment profiles classified?
  33. 33What does the investment profile assessment ask about?
  34. 34If I do not want any loss of principal at all, can I sign a discretionary investment or advisory contract?
  35. 35Once my investment profile has been assessed, does it never change?
  36. 36What happens if I want to invest in a product riskier than my investment profile?
  37. 37What is behavioral finance?
  38. 38What is loss aversion?
  39. 39Are loss aversion and risk aversion the same thing?
  40. 40Is it also a bias when the stocks I own seem better?
  41. 41If I invest in installments, can I be recommended products riskier than my investment profile?
  42. 42Why do people sell rising stocks quickly and hold on to falling ones for a long time?
  43. 43Why is overconfidence a problem in investing?
  44. 44How does the anchoring effect show up in investing?
  45. 45What is mental accounting?
  46. 46How does status quo bias affect investing?
  47. 47Is it a problem to buy just because everyone else is buying?
  48. 48Shouldn't I just pick funds with high recent returns?
  49. 49What does compounding mean for long-term investing?
  50. 50Does long-term investing make risk disappear?
  51. 51What is the relationship between risk and return?
  52. 52Besides diversification, what other ways are there to reduce risk?

General financial information, not investment advice. Rules and tax rates change; please check the latest guidance from the source institution.