What Is A Portfolio?
The term “portfolio” refers to a collection of financial assets, such as stocks, bonds, commodities, and cash, that someone owns, usually an investor.
A portfolio is a combination of an entity’s financial assets. Various things make up a portfolio, including stocks, bonds, and cash, and an individual or a financial institution may manage it.
Stocks, bonds, and cash are not the only assets that make up a portfolio, though they popularly feature in most people’s portfolios. Other kinds of assets that you may find in a portfolio include real estate and art.
An individual may create and manage their portfolio by themselves. Typically, such an individual must be knowledgeable in whatever area they choose to invest their money and determine what constitutes their portfolio. Many people often opt to use professional services such as financial managers and advisors to manage their portfolios to be on the safe side.
Portfolio management essentially involves picking the right set of assets to minimize losses and maximize your returns. When evaluating what will make up a portfolio, the focus usually is on what would make the most returns with little risk. A helpful rule of thumb is to design the portfolio according to the investor’s risk tolerance and investment goals.
There are different kinds of portfolios, below are the most common types:
- Aggressive Portfolio: This kind of portfolio takes high risks in search of high returns. Typically, it includes investment in companies that are in the early stages of their growth.
- Defensive Portfolio: This kind of portfolio comprises investment in the stock of companies that produce essential commodities. Companies that make essential items thrive regardless of the economic situation.
- Income Portfolio: This portfolio focuses on investments that pay dividends or other types of incentives to shareholders.
A portfolio is a collection of a person’s financial assets. Today, several assets make up a portfolio. For instance, people are investing in cryptocurrency. You can create and manage a cryptocurrency portfolio by investing in Bitcoin and other cryptocurrencies.
John is a millionaire worth $7 million. He does not want to keep this amount in one particular asset. He, therefore, invests $2 million in property, $1 million in bitcoin, $1 million in bonds, $1 million in art, and keeps $2 million in cash. John has a diverse portfolio and is more likely to retain his net worth if any of these markets crash.« Back to Glossary Index