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Financial Literacy
Grade 9-12
Diversification & Portfolio Basics Cheat Sheet
A printable reference covering diversification, asset allocation, risk and return, portfolio weights, and rebalancing for grades 9-12.
Related Worksheets
Diversification and portfolio basics explain how investors combine different assets instead of putting all their money in one place. Students need this cheat sheet to understand how risk, return, and time horizon affect investment choices. It also helps connect everyday financial decisions to long-term goals like college savings, retirement, or building wealth. A portfolio is not just a list of investments, it is a plan for balancing growth and safety.
Key Facts
- Portfolio weight is found by weight = value of one investment / total portfolio value.
- Portfolio return is found by portfolio return = w1r1 + w2r2 + w3r3 + ... where w is each asset weight and r is each asset return.
- Diversification lowers company-specific risk by spreading money across different assets, industries, or regions.
- Asset allocation is the mix of asset classes in a portfolio, such as stocks, bonds, cash, and funds.
- Risk and return are related because investments with higher potential return usually have higher uncertainty and possible loss.
- Rebalancing means adjusting a portfolio back to its target weights, such as returning from 70% stocks and 30% bonds to 60% stocks and 40% bonds.
- A longer time horizon can often support more risk because there is more time to recover from market drops.
- An emergency fund should usually be kept separate from an investment portfolio because it needs to be safe and easy to access.
Vocabulary
- Portfolio
- A portfolio is the full collection of investments a person owns, such as stocks, bonds, funds, and cash.
- Diversification
- Diversification is spreading money across different investments to reduce the impact of one poor performer.
- Asset Allocation
- Asset allocation is the percentage of a portfolio placed in each major asset type, such as stocks, bonds, and cash.
- Risk
- Risk is the chance that an investment will lose value or earn less than expected.
- Return
- Return is the gain or loss on an investment, usually shown as a percentage of the amount invested.
- Rebalancing
- Rebalancing is buying or selling investments to bring a portfolio back to its planned target mix.
Common Mistakes to Avoid
- Putting all money into one stock, because one company can lose value quickly and damage the entire portfolio.
- Confusing diversification with owning many similar investments, because ten technology stocks may still move in the same direction during a market drop.
- Ignoring portfolio weights, because a small number of large holdings can control most of the portfolio’s risk and return.
- Chasing last year’s best performer, because past performance does not guarantee future results and may lead to buying after prices have already risen.
- Forgetting to rebalance, because market changes can turn a balanced portfolio into one that is riskier or more conservative than intended.
Practice Questions
- 1 A student has 300 in bond funds, and $100 in cash. What are the portfolio weights for stocks, bonds, and cash?
- 2 A portfolio is 50% in an investment that returns 8%, 30% in an investment that returns 4%, and 20% in an investment that returns 1%. What is the portfolio return?
- 3 A target portfolio is 70% stocks and 30% bonds. After market changes, a 1,600 in stocks and $400 in bonds. How many dollars should move from stocks to bonds to rebalance to the target?
- 4 Why might a student saving for a purchase next year choose a different portfolio than an adult investing for retirement in 30 years?