l bonds and preferred shares fall in value. Systematic risk can not be diversified away; the more a portfolio becomes diversified, the more it ends up mirroring the market. Nonsystematic or security specific risk – This risk pertains to the risk that the price of a specific security or a specific group of securities will change in price to a different degree or in a different direction from the market as a whole. Diversifying among a number of securities can reduce nonsystematic risk.Both of these types of risk can be avoided when you correctly evaluate your risk guidelines and determine the maximum amount of risk that you are willing to handle. Conclusion: Once your portfolio has been established then next step in the management is to evaluate your portfolio’s performance. The success of your portfolio is determined by comparing the total rate of return of the portfolio to the average total return of comparable portfolios. It is essential to develop a system to monitor the appropriateness of the securities that comprise the portfolio and the strategies governing it. The process is twofold as it involves monitoring: The changes in your goals, financial position and preferences; Expectations in capital markets and individual companies;Remember that diversification is more than placing your eggs in different baskets. It is also making sure that all your baskets aren’t made from the same material. ...
