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"In finance, risk is best judged in a portfolio context." Is this true? Why? - Essay Example
Author : lefflerrodrigo
Finance & Accounting
Pages 6 (1506 words)
Portfolio Risk Assessment (Name) (Institution) (Subject) (Tutor) (Date) Individuals or companies invest their resources by purchasing various assets with hope of making gains from them when their market value goes above the purchasing price or from share of profits attained through trading activities (Engle 2009, p…
87). This uncertainty about future value of the assets makes it dangerous for the investors to put all their resources in a single investment opportunity no matter how lucrative it may seem to be. Therefore, it is preferable to spread resources in a collection of stocks as a precaution against total loss of investment due to unpredictable loss. Investors set their investment goals of maximizing their earnings and stabilizing their income from increase in value of their assets between the time of making investment and future period when they anticipate their portfolio to mature (Enrica 2012, p.123). However, the market is full of challenges that investors cannot predict at the time they are making investment. These challenges threaten to thwart investors’ objectives if increasing the value of their assets. Therefore, investors should be cautious in order to avoid losing all of their resources. Some of the risks the investors face in the market include: Liquidity risk, a type of risk that occurs in the event that assets can neither be sold nor bought faster enough to realize the perceived profit or to avert the anticipated decline in its market value (Connor, Goldberg and Robert 2010, p. 187). ...