Portfolio theory

Do you know how sometimes you might have a lot of different toys or games to play with? Well, imagine if you had a lot of money, and instead of toys, you had different types of investments like stocks, bonds, and real estate. That's called a portfolio.

Now, just like how you might want to have different toys to play with, it's also a good idea to have different types of investments in your portfolio. That way, if one doesn't do well, you still have others that can make up for it.

Portfolio theory is the idea of figuring out how to have a good mix of different investments so that you can still make money even if some of them aren't doing well. It's like putting together a puzzle - you want to make sure that all the pieces fit together well so that you get the best overall picture.

This theory looks at different factors, like how risky an investment is (how likely it is to lose or gain money), and how much of your portfolio should be made up of each investment. It also looks at things like your goals and how much money you want to make.

So, just like how you might mix and match different toys to have fun, portfolio theory helps people mix and match different types of investments to make money.