1 – L3 01 Intro V1

Welcome back. So, far in this module, you’ve learned about Indices and ETFs, their application in the real world and how they work on a transactional level. Now, we’re going to talk about the baskets of stocks that underlie these instruments and you will learn how to distribute money across the stocks in the basket. First, we’ll discuss the risk and return properties of a collection of stocks. So, let’s say, you’ve researched your trading signals and finally come up with a list of stocks to buy. You know how much money you have to spend. You’re ready to buy the stocks needed to construct a portfolio for an ETF. But, how much money should you invest in each stock? Well, putting more money in stocks that you expect to have the highest returns, seems naturally more likely to give you higher returns. But what if the prices of these stocks undergo the most fluctuations. That is they entail the greatest risk. You might have great returns for a while, but then, you could lose it all. There must be a balance here. How do you distribute money to not only maximize returns, but also minimize risk. That’s a question that’s been challenging great financial minds for years and you’re about to embark on a quest in search of the solution.

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