Investment portfolio: what is it, what happens and how to make it up

To invest all means only in one tool of multiplying capital has always been considered a very risky occupation. It is much more stable and more efficient to distribute funds in different directions so that possible losses in one area are compensated by an increased level of income in another. Practical implementation of this idea is an investment portfolio. As a matter of fact, it represents all set of financial and real investments. If we talk about the stock market, in the narrow sense of the word this term means absolutely all securities, regardless of the type, duration and liquidity, belonging to a legal entity or an individual acting as an integral management object.

What is the investment portfolio?

Each investor has its own priority between risks, profitability and liquidity of investments. Depending on the ratio of these factors, we can distinguish a portfolio of growth, income and mixed, reasonably combining both these directions. Each of them has its own goals and characteristics. So, the investment portfolio of growth is aimed at maximizing income in the long term. In this case, the depositor refuses from the high-yielding directions, yielding income for a short time interval. The basis of such a portfolio, as a rule, is paper, stably demonstrating growth, and its purpose is to increase capital by increasing the market value of such assets. In this case, dividends play a secondary role. The investment income portfolio, by contrast, aims to maximize the profit from each transaction and is designed to maximize profitability in the short term. In this case, the long-term outlook for securities is not critical, and the decisive criterion for selecting securities is a high current income, including through dividend and interest payments. The risk of the investment portfolio in this case is much higher than the previous one. Two of these species are extreme, relevant only in special cases and under certain circumstances. It is best, of course, to form a balanced portfolio, or as it is called, an investment portfolio of growth and income. Its goal is an optimal combination of profitability and risks.

Selection of investment tools

Regardless of the type of portfolio, we recommend diversification everywhere. Different papers are influenced by a huge number of factors, and it is impossible to follow all of them. Therefore, the concept of an investment portfolio implies a reasonable allocation of funds between different types of financial instruments. After choosing an asset class, it makes sense to distribute funds between different types of securities belonging to this class. For example, if the government decided to focus its efforts on the energy sector, instead of buying an explicit leader for the entire equity of securities, it is better to purchase shares of several companies working in this area. Another option for diversification is the choice of securities with different terms of payment of dividends. This will make it possible to reinvest in assets whose value has gone up significantly.

Periodic review

At least once a year, you need to do a comprehensive analysis and evaluate the current distribution of assets and, if necessary, adjust the ratio of assets. In the beginning, it is important to learn how to achieve goals at a given time in the long term, and as experience accumulates, when you feel confident in your projections, you can regulate the portfolio more often.

Reinvestment

Regular investment of a part of the received profit into assets can greatly increase the capital. In this case, instead of a large deposit at the end of the annual period, it is better to invest 1/12 of this amount on a monthly basis. Although it is quite permissible to make large investments, if they are at the moment, and the current situation requires quick action.