Portfolio Optimization: A Primer

In this particular article, I’ve decided to try out a slightly different style of relaying information. The basic philosophy is as follows: I’ll provide low resolution information on a particular topic, then as we go through the article it will gradually be recalled again to where a higher resolution of it is provided. Fingers crossed it works as intended (Please let me know in the responses if it has).

Contents

Part 1: Investment Instruments

Part 2: Portfolio Theory

Part 3: Portfolio Optimization

Part 4: Application of Portfolio Optimization

Conclusion

1- Investment Instruments

It is not uncommon to be bombarded left, right, and center by ‘opportunities’ to ‘invest’. Whether by a barrage of Youtube ads from brokers or your barber convincing you “it’s a good time to invest in gold”. We are constantly being told to invest. The question we must ask, is why?

Let’s consider the case for an individual. We’ll analyze our spending and our earnings curve over time. The average life expectancy in Kuwait is about 75 years, so we’ll take examine typical spendings and earnings from birth till death. It’ll look something like this: