Optimal Portfolio Management for Risk-Averse and High Risk Tolerance Investors

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Project Report: Accounting

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Contents
Introduction.......................................................................................................................3
Portfolio overview............................................................................................................3
Optimal portfolio and the performance of the portfolio...................................................5
Recommendation and conclusion.....................................................................................9
References.......................................................................................................................10

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Introduction:
Portfolio management is an art and science which is used to make decision about the
investment into few securities to manage the risk and return. This portfolio management
process is used to match the investment objective, asset allocation etc for institutions and
individuals and maintain the risk against performance. The overall aim of the portfolio
management is to determine strength, opportunities, threats and weakness of the debts,
equity, domestic shares, international shares, safety, growth etc to attempt to minimize the
risk and maximize the return (Zimmerman and Yahya-Zadeh, 2011).
In the report, the optimal portfolios have been prepared on the basis of the risk and
return. On the basis of the given data, 2 portfolios have been prepared. One portfolio focuses
on the risk-averse investors and other focuses on the high risk tolerance. In the given report,
the performance of both the portfolios has been measured to identify the position of the firms
and the overall returns from the portfolios. For evaluating the risk position and the return of
the assets, equity and debt, FTSE 250 index price has been taken into the concern.
Portfolio overview:
Portfolio is a collection of investment which is all owned by the same investor,
individual or an organization. Normally, these portfolios include stocks, bonds, investment in
individual businesses, government securities, mutual funds, debt etc to reduce the risk level
and manage the return from the overall investment of the individual (William et al, 2015). A
portfolio is prepared in such a way that if one stock is offering the negative result than other
stock, bond or other securities overcome that risk and loss of the individual.
The portfolio explains that all the amount must be invested into different securities so
that the risk could be diversified and a portfolio manger must assures that the investment is
done in the different venture. In the given case, the 3 different firms of UK market have been
taken for the purpose of portfolio. The risk and return of all the firms have been calculated
firstly to make an optimal capital structure for the risk-averse investors and other focuses on
the high risk tolerance.
The risk-averse investors are those individuals or the organization that prefer to take
lower return for the portfolio with known risk rather than taking the higher return from the
unknown risk. These kinds of investors play safe in the security market and invest in those

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securities which are associated with lower risk (Nobes and Parker, 2008). On the other hand,
high risk tolerance investors are those individuals which mainly focus on the higher return.
No matter, how much risk is associated with the portfolio, they only focuses on the higher
returns from the portfolio. The risk-averse investors and the high risk tolerance explain that
the choices of an individual are always different while preparing a portfolio. Some only
focuses on the risk whereas some focuses on the return of the company.
Along with the investment in each security or stock, the risk and return is essential. A
few reasons due to which portfolio is prepared by the investors are:
 Risk of losing the money
 With the volatility in the price, the worth of the total investment could be lower at the
time of need (Weygandt et al, 2009).
 The changes into the growth or the competition level could affect the stock price of an
organization.
 Or the changes into a particular industry could also affect the investment of an
individual.
Thus, an investor has to be sure that the investment has to be done in different
organization from different industry and in government bonds and the debts so that the level
of the risk could be minimized (Phillips and Stawarski, 2016). A portfolio could be
diversified in many ways to manage the risk and return of an organization. An investor could
follow the different methods to manage and prepare a portfolio such as:
 Diversification of investment through investing into the stocks, currencies, real estate
investment, convertible securities etc.
 Investment into the different countries so that the economic fluctuation could not
impact on the return.
 Investment into the different market to save from currency fluctuations and other
factors (Niu, 2006).
 Investment into the different industry to reduce the industry risk.
 Different market optimization
 Investment companies with different market share