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Rebalancing is the process of realigning the weightings of a portfolio of assets to maintain a desired level of asset allocation. It is essential for managing risk and ensuring that the investment strategy remains consistent with an investor's goals and risk tolerance over time.
Risk management involves identifying, assessing, and prioritizing risks followed by coordinated efforts to minimize, monitor, and control the probability or impact of unfortunate events. It is essential for ensuring that an organization can achieve its objectives while safeguarding its assets and reputation against potential threats.
Market volatility refers to the rate at which the price of assets in a financial market increases or decreases for a given set of returns. It is a crucial measure of risk and uncertainty, affecting investment decisions, portfolio management, and economic stability.
Diversification is a risk management strategy that involves spreading investments across various financial instruments, industries, and other categories to reduce exposure to any single asset or risk. By diversifying, investors can potentially achieve more stable returns and mitigate the impact of market volatility on their portfolios.
Capital appreciation refers to the increase in the value of an asset or investment over time, measured by the rise in its market price. It is a key component of total return, alongside income, and is typically sought by investors aiming for long-term growth in their portfolio's value.
Financial planning is the process of setting, managing, and achieving your financial goals through the strategic allocation of resources, budgeting, and investment. It involves assessing your current financial situation, projecting future needs, and implementing strategies to meet those needs while adapting to changes in personal circumstances and economic conditions.
An equal-weighted index assigns the same weight to each constituent stock, ensuring that all stocks contribute equally to the index's overall performance. This approach contrasts with a market-capitalization-weighted index, where larger companies have a greater impact on the index's movements, potentially offering more diversification but also requiring periodic rebalancing to maintain equal weights.
Portfolio monitoring is the ongoing process of tracking and analyzing the performance and risk of an investment portfolio to ensure it aligns with the investor's objectives and risk tolerance. This involves assessing asset allocation, evaluating market conditions, and making necessary adjustments to optimize returns and manage risks effectively.
Passive investment is a strategy that involves investing in a diversified portfolio designed to replicate the performance of a market index, minimizing buying and selling activities to reduce transaction costs and taxes. This approach relies on the belief that markets are efficient over the long term, making it difficult to consistently outperform them through active management.
Index methodology refers to the systematic approach used to construct, calculate, and maintain an index, ensuring it accurately reflects the performance of a specific market or sector. It involves selecting components, determining their weightings, and establishing rules for periodic rebalancing and adjustments to maintain the index's relevance and integrity.
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