Portfolio Theory


A portfolio is a collection of different investments which comprise an investor‟s total investments.  For example, a property investor‟s portfolio may consist of many investment properties in different locations and which are used for varied purposes.  Other examples of a portfolio are an investor‟s holding of shares, or a company‟s investment in many different capital projects.  Portfolio Theory is concerned with setting guidelines for selecting suitable shares, investments, projects etc. for a portfolio.


By investing all of one‟s funds in a single venture the whole investment may be lost if the venture fails.  However, by spreading the investment over a number of ventures the risk of losing everything will be reduced.  If one of the ventures fails only a proportion of the investment will be lost and hopefully, the remainder will provide a satisfactory return.

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