Investments: Background and Issues

These flashcards cover key concepts related to investments, portfolio management, and the investment process, providing definitions and explanations essential for understanding the material.

Investment

The current commitment of money or other resources in the expectation of reaping future benefits.

Real Assets

Assets used to produce goods and services, such as land, buildings, and equipment.

Financial Assets

Claims on real assets or the income generated by them; includes debt, equity, and derivatives.

Portfolio Construction

The process of creating a portfolio that consists of investment assets by purchasing and/or short selling them.

Asset Allocation

The choice among broad asset classes to distribute an investor’s wealth for investment purposes.

Security Selection

The choice of particular securities within an asset class.

Intrinsic Value

The evaluated worth of securities like bonds and stocks for investment attractiveness.

Risk-Return Appetite

An investor's willingness to accept risk for potential returns.

Active Management

The attempt to improve performance by identifying mispriced securities or timing the market.

Passive Management

Holding highly diversified portfolios without active performance improvement efforts.

Investment Objectives

Goals that balance returns with risk tolerance, including capital preservation, capital appreciation, current income, and total return.

Liquidity Needs

The need for cash on short notice, which affects investment return and risk.

Investment Policy Statement

A document specifying investment goals and acceptable risk levels to guide investment decisions.

Rebalancing

Updating or adjusting a portfolio to maintain its desired asset allocation.

Time Horizon

The planned liquidation date for the investment assets or portfolio.