Sample Term Paper
Portfolios are combination of various types of investment depending on the level of risk and returns. Portfolios include several types of securities and are deigned to diversify the risk of an investor. In order to be effective and earn high profits for the investor portfolios should not be left quiescent and should be restructured and rebalanced from time to time depending o the shift in levels of risk. When riskier securities are sold and are replaced with safer securities it is termed as rebalancing of portfolios.
It is generally assumed that with the passage of time and age the level of risk tolerance of a person changes from very high to moderate to low. When a person retires or nears retirement the level of his/her risk tolerance decreases and investors tend to switch from riskier shares to safer shares. The older investors base their investment strategy on saving capital rather than spending it on risky assets and when safer securities are bought to replace risky securities it is termed as rebalancing of portfolio.
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