Top down investment

Top down investors start from the highest level decisions such as deciding how much to invest in different classes of investments (such as equities and bonds) and in which geographic regions (globally). Next, they look at which sectors to invest in. Picking individual securities is the last step.

Top down investing tends to lead to good diversification. It tends to encourage investors to be conservative. Many top down portfolios are close to being closet trackers.

Investors who look primarily at individual securities are using a bottom up approach.

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