Investment Portfolio Theory

Investment Portfolio Theory is a framework that guides how investors can build a collection of assets—like stocks, bonds, and others—to maximize returns while minimizing risk. It emphasizes diversifying investments so that poor performance of one asset doesn’t severely impact the overall portfolio. By carefully selecting a mix of assets with different risk and return characteristics, investors aim to achieve the best possible balance between risk and reward suited to their financial goals and risk tolerance. This theory helps in making informed decisions to optimize investment performance over time.