Unit 5: Critical Assessment Forum Peer Response

Directions 

Peer Response

Within business, working professionals should become comfortable receiving and giving constructive feedback. Critical analysis of topics, and providing and receiving constructive feedback, is important in one’s professional growth and development and a core competency for leaders. You will be expected to read the initial posting of at least ONE peer or instructor, and then provide constructive criticism to their peers’ initial postings. You should highlight strengths as well as opportunities for improvement:

1. Point out what you perceived to be the strengths of the initial posting along with supporting rationale.

2. Identify specific opportunities for improvement with regard to the content in the initial posting. Furthermore, you should provide supporting rationale for your stated position, as well as concrete suggestions and guidance intended to strengthen the effectiveness of the content.

Each response should be a minimum of 250 words

Veronica Verdugo

As individual investors, why is diversification an important consideration in a large portfolio and how does this apply to your own investment decisions related to securities you may choose as investments?

In order to maximize your returns, diversify your investments to limit the amount of risk you are exposed to. Although certain risks, such as systemic risks, cannot be avoided, unsystematic risks, such as commercial or financial risks, can be mitigated against. Diversification can aid in risk management and decrease the volatility of an asset's price changes. However, keep in mind that risk can never be totally avoided, no matter how well-diversified your portfolio is. You may lower the risk associated with specific equities, but overall market hazards affect practically every stock, so diversification across asset classes is also crucial. The idea is to strike a balance between risk and reward. This way, you'll be able to meet your financial objectives while also enjoying a decent night's sleep (Lioudis, 2021). 

A good rule of thumb is to include items in your portfolio that do not have connected returns. As a result, if a market event hits one section of your portfolio, it either does not affect the complete portfolio or has the opposite effect on another. You can diversify between asset classes or within them. To begin, diversify your investment portfolio beyond equities. Many investing portfolios include bonds, but you might also include real estate or other alternative investments. Second, make sure your stock portfolio is well-diversified. This can be accomplished in a variety of ways:  invest in companies across different stock market sectors, different sizes, and both domestic and international stocks.

A robo-advisor is a tool that can assist diversify a portfolio. Investors can employ robo-advisors to create a diverse portfolio without having to conduct their own research and selection. When you join up for a robo-advisor, you provide information about your financial goals, and the robo-advisor creates a diverse portfolio for you, rebalancing it automatically over time (Gobler, 2022). Robo-advisors, often known as automated investing services, design and manage your investment portfolio using computer algorithms and smart software. The services range from automatic rebalancing to tax optimization and require little to no human engagement, but many providers do have human advisors on hand to answer issues. Traditional portfolio management services frequently demand large balances; robo-advisors, on the other hand, usually have low or no minimum requirements. Because of this, as well as their inexpensive fees, robo-advisors allow you to get started investing in a couple of minutes in several circumstances (O’Shea, 2022).

 

References:

Gobler, E. (2022, January 14). Diversifying Your Portfolio Reduces Your Risk in Investing. Here’s Why That’s So Important. NextAdvisor with TIME. Retrieved February 7, 2022, from https://time.com/nextadvisor/investing/why-diversifying-portfolio-is-important/

Lioudis, N. (2021, November 30). The Importance Of Diversification. Investopedia. Retrieved February 7, 2022, from https://www.investopedia.com/investing/importancediversification/#:%7E:text=When%20you%20diversify%20your%20investments%2C%20you%20reduce%20the%20amount%20of,like%20business%20or%20financial%20risks.

O’Shea, A. (2022, January 25). What Is a Robo-Advisor and Is One Right for You? NerdWallet. Retrieved February 7, 2022, from https://www.nerdwallet.com/article/investing/what-is-a-robo-advisor