PM1 Diversification

Three ETFs trade together. A retirement fund is allocated among them.

Objective

Build an allocation that balances return and risk. Assessed on profit and loss.

What it shows

• Diversification across asset classes.
• A portfolio as a weighted sum, and risk as more than a weighted sum.
• The trade-off between an allocation that earns and one that holds.

Watch out for

• Holding the one ETF that did well first.
• Mistaking an equal split for a diversified one.
• A position that looks safe and is a bet on one sector.

Who takes part

• Investor — every student. Allocates 1,000,000 among EQTY, an equity ETF, BOND, a bond ETF, and REIT, a real estate ETF.

Class size

Any size. Each student builds their own allocation; ten or more makes a useful comparison of choices.