Portfolio construction allows for a reduction in risk of the portfolio over individual assets:

Question

Quizplus · Accepted Answer

Portfolio construction allows for diversification which can reduce the risk of the portfolio without changing the expected returns. This is achieved by combining assets with non-perfect positive correlation, creating a portfolio with lower overall volatility than the individual assets. The goal is to obtain the same expected return with a lower level of risk. There may be some additional cost associated with portfolio construction such as costs of transaction, but it does not necessarily mean that overall cost is increased - this depends on the specific portfolio construction strategy.

Portfolio Construction Allows for a Reduction in Risk of the Portfolio