Portfolio Weights

There are many equivalent ways of describing a portfolio. The most convenient approach is to list the percentage of the total portfolio's value that is invested in each portfolio asset. We call these percentages the portfolio weights.

For example, if we have $50 in one asset and $150 in another, then our total portfolio is worth $200. The percentage of our portfolio in the first asset is $50/$200 = .25. The percentage of our portfolio in the second asset is $150/$200, or .75. Our portfolio weights are thus .25 and .75. Notice that the weights have to add up to 1.00 because all of our money is invested somewhere.1

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