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Achieving Portfolio Diversification for Individuals with Low Financial Sustainability

Author

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  • Yongjae Lee

    (Department of Industrial Engineering, Ulsan National Institute of Science and Technology (UNIST), Ulsan 44919, Korea)

  • Woo Chang Kim

    (Department of Industrial and Systems Engineering, Korea Advanced Institute of Science and Technology (KAIST), Daejeon 34141, Korea)

  • Jang Ho Kim

    (Department of Industrial and Management Systems Engineering, Kyung Hee University, Yongin-si 17104, Gyeonggi-do, Korea)

Abstract

While many individuals make investments to gain financial stability, most individual investors hold under-diversified portfolios that consist of only a few financial assets. Lack of diversification is alarming especially for average individuals because it may result in massive drawdowns in their portfolio returns. In this study, we analyze if it is theoretically feasible to construct fully risk-diversified portfolios even for the small accounts of not-so-rich individuals. In this regard, we formulate an investment size constrained mean-variance portfolio selection problem and investigate the relationship between the investment amount and diversification effect.

Suggested Citation

  • Yongjae Lee & Woo Chang Kim & Jang Ho Kim, 2020. "Achieving Portfolio Diversification for Individuals with Low Financial Sustainability," Sustainability, MDPI, vol. 12(17), pages 1-16, August.
    • Handle: RePEc:gam:jsusta:v:12:y:2020:i:17:p:7073-:d:406234
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    2. Jaeyong Yu & Gunyoung Lee & Jang Ho Kim, 2021. "Towards Personal Financial Sustainability Based on Human Capital Analysis in Korea," Sustainability, MDPI, vol. 13(5), pages 1-13, March.
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