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It is impossible to construct a portfolio of risky assets whose return is equal to the risk-free rate?
Wiki User
∙ 14y ago
Practically Yes. A portfolio that is aggressive (risky) is entirely different from the one that is risk free (conservative)
An aggressive portfolio is designed with the motive of earning high returns on our investment. This is suitable only for high risk investors for whom capital preservation is not a priority. They are ready to take the risk to ensure that their money is growing at a rate that far outpaces inflation.
An aggressive portfolio is one that has exposure to equity related components to the level of at least 70% or more. The remaining portion is invested in safe instruments like bank deposits, bonds etc.
A conservative portfolio is one in which our main aim is capital protection. The gains may be small but the capital we invested would not erode in value. That is the reason why 75% or even more of the portfolio is invested in safe instruments. Only the remaining is invested in moderate risk to high risk instruments.
So, matching the returns on the two types of portfolios is extremely difficult and practically impossible.
Wiki User
∙ 14y ago
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