Investment has become a growing tendency and method for people to deal with their income, while portfolio is an important investment vehicle. In the same time, financial services industry has played a critical part in making investment portfolio available to ordinary people. In this essay, the meaning and functions of portfolio will be analyzed and it will argue the advantages of the financial services industry outweigh the disadvantages.
Firstly, portfolio theory has become an essential strategy in the modern investment market. In general, according to Elton (2011), it is a common situation that each person may possess a portfolio which is combined with real assets such as a vehicle or a house, including financial assets such as stocks and bonds. An investment portfolio is a series of chosen securities for investing purpose. In order to avoid risks or pursue for profits, investors are faced with enormous number of choices. If one is considering structuring an investment portfolio, the alternative composition of various assets seems overwhelming. So how to make a decision and what is a good , even best portfolio are the points in the first part.
As Clark and Kim (2013) said, portfolios are the objects of choice. A great number of information is needed for investors to make a decision because it is smarter to divide the money in different assets instead of concentrating on a specific financial product. Portfolio analysis was created by the Nobel laureate Harry Markowitz in the 1950s, which is a mathematical algorithm at first. This theory requires three statistics:
1. The expected rate of return, , for each investment.
2. The standard deviation of returns, , for each investment.
3. The correlation coefficients, , between all pa...
... middle of paper ...
...he inherent and man-made faults, financial services industry does make it possible for ordinary people to have their own portfolio and manage their income, while more improvements need to be taken.
In summary, portfolio is a wise choice when investors make decisions. And the optimal portfolio for individual investor depends on three key variables, which are the expected rate of return , the expected level of risk and the utility of return for different investors. Furthermore, financial services industry has an indispensable role to play in safeguarding and providing guidance for people’s personal property safety. It is the financial services that makes it accessible for ordinary people to have probability to construct their individual investment portfolio without complete expertise and adequate experience, while some internal drawbacks still need to be noticed.
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