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(a) Under modern portfolio theory, explain whether the robo portfolios are diversified portfolios. (b) Would the...

(a) Under modern portfolio theory, explain whether the robo portfolios are diversified portfolios.

(b) Would the investors can achieve nearly the same diversification benefit when they using a handful of ETFs and 20 ETFs to form portfolios?

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Answer #1

Answer(a): Modern portfolio theory- This theory says that investors can earn expected return from the market if they are risk averse and are ready to take high level of risk. High risk provides higher return and vice versa.

No, Robo portfolio is not a perfect diversified portfolio. Robo portfolio is a simple portfolio with low cost. Robo portfolio has limited asset class not the broad asset class. Robo portfolio is not personalized one.

Answer(b): Yes, diversification can be done through Exchange traded funds (ETFs). ETFs gives the benefit of diversification by putting investors' money into different companies of a particular sector/industry. There are some high beta and low beta stocks, investing ETF can minimize the risk of directly investing into high beta stocks. ETFs are exchanges traded and can be easily bought and sold.

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