Portfolio
All your investments seen as one thing. Judging a position on its own leads to decisions that make the whole worse.
In the chapter
Putting the surplus to work
From the same chapter
- ReturnWhat an investment gains or loses, in percent. Without saying over what period, a percentage means nothing.
- Real returnThe return once inflation is stripped out. The only one that says whether you gained purchasing power or just figures.
- VolatilityHow much an investment's value swings. Not the same as risk: the real risk is needing the money at exactly the worst moment.
- DiversificationSpreading out so no single failure takes you down. It does not raise expected return: it lowers how bad things can get.
- Asset allocationWhat proportion goes to each asset type. It explains most of how a portfolio behaves, far more than picking well within each type.
- EquitiesStakes in companies. They pay more over the long run and swing far more: those two are the same fact.
- Fixed incomeLending money for an agreed interest. 'Fixed' refers to the coupon, not the price: a bond's value does move.
- BondA loan sliced up and made tradable. When rates rise, existing bonds are worth less, because they pay less than new ones.