There isn’t any way to eliminate all of the risk from investing. If there was a way, investors wouldn’t be compensated for their capital. But, financial professionals and academics have put together numerous metrics for evaluating risk and the standard corresponding measures to minimize risks taken to achieve a given goal for investing. Allocation and diversification are straightforward risk management tools within portfolio theory. Diversification will refer to exposure to certain securities, classes, industries, or additional factors. Allocation will refer to how well the combination of asset classes within a portfolio reflects investment necessities.
Diversified portfolios aren’t heavily exposed to any one security, which means that unsystematic risk was diluted. For an investor who doesn’t have a high net worth, it often is challenging to purchase enough positions to sufficiently diversify a portfolio. ETFs (exchange-traded funds) have become popular investment vehicles for this type of an audience by permitting the investor to purchase shares of diversified, large holdings within more accessible denominations. PowerShares Dynamic Food and Beverage exchange traded fund includes the most popular exchange-traded fund tracking the food and beverage sector.
If safety includes the main requirement for the investor searching for exposure to the food and beverage sector, allocation is critical. Generally, bonds are considered a safer investment than an equity because they’re senior securities in the instance of liquidation, and a fixed-income investment carries a promise to pay back a holder at face value. Historically, bond returns lagged equity returns yet also have been more stable. More importantly, bond risk is assessed by ratings agencies like Fitch Ratings, Standard & Poor’s and Moody’s. Food and beverage sector members that have exceptional investment-grade corporate bonds involve Diageo, Kraft Foods, PepsiCo, Anheuser-Busch InBev, Coca-Cola, Sysco, as well as Ambev.