The goal of a portfolio owner is to:
A)maximize both risk and return, as the higher the risk, the higher is the return.
B)investment only in risk-free assets that help avoid taxes.
C)capture the high average returns of equities while minimizing the associated risk.
D)avoid diversification and focus on stocks from one particular market.

Question

Quizplus · Accepted Answer

The goal of a portfolio owner should always be to balance risk and return, and minimize risk while maximizing returns. Option C describes this goal accurately by aiming to capture the high average returns of equities while minimizing the associated risk, through diversification and strategic asset allocation. Option A is incorrect, as maximizing risk often leads to higher potential returns but also significantly increases the potential for loss. Option B is also incorrect, as it is not realistic to only invest in risk-free assets and hence there is no such asset that comes without taxes. Option D is not a good choice, as avoiding diversification can lead to significant risks, and investing only in one particular market may not be optimal as the performance of that market may fluctuate.

The Goal of a Portfolio Owner Is To