|
2. Income portfolio
Generally speaking, an income portfolio is more focused on securing regular income from investments as opposed to focusing on potential capital gains. An example is buying stocks based on the stock’s dividends rather than on a history of share price appreciation.
3. Value portfolio
For value portfolios, an investor takes advantage of buying cheap assets by valuation. They are especially useful during difficult economic times when many businesses and investments struggle to survive and stay afloat. Investors, then, search for companies with profit potential but that are currently priced below what analysis deems their fair market value to be. In short, value investing focuses on finding bargains in the market.
Steps in Building an Investment Portfolio.
To create a good investment portfolio, an investor or financial manager should take note of the following steps.
1. Determine the objective of the portfolio
Investors should answer the question of what the portfolio is for to get direction on what investments are to be taken.
2. Minimize investment turnover
Some investors like to be continually buying and then selling stocks within a very short period of time. They need to remember that this increases transaction costs. Also, some investments simply take time before they finally pay off.
3. Don’t spend too much on an asset
The higher the price for acquiring an asset, the higher the break-even point to meet. So, the lower the price of the asset, the higher the possible profits.
4. Never rely on a single investment
As the old adage goes, “Don’t put all your eggs in one basket.” The key to a successful portfolio is diversifying investments. When some investments are in decline, others may be on the rise. Holding a broad range of investments helps to lower the overall risk for an investor.
What Is a Portfolio Investment?
A portfolio investment is ownership of a stock, bond, or other financial asset with the expectation that it will earn a return or grow in value over time, or both. It entails passive or hands-off ownership of assets as opposed to direct investment, which would involve an active management role.
Portfolio investment may be divided into two main categories:
Strategic investment involves buying financial assets for their long-term growth potential or their income yield, or both, with the intention of holding onto those assets for a long time.
The tactical approach requires active buying and selling activity in hopes of achieving short-term gains.
The term portfolio investments covers a wide range of asset classes including stocks, government bonds, corporate bonds, real estate investment trusts (REITs), mutual funds, exchange-traded funds (ETFs), and bank certificates of deposit.
Portfolio investments can also include more esoteric choices including options and derivatives such as warrants and futures.
There also are physical investments such as real estate, commodities, art, land, timber, and gold.
In fact, a portfolio investment can be any possession that is purchased for the purpose of generating a return in the short or long term.
The composition of investments in a portfolio depends on a number of factors. The most important are the investor’s tolerance for risk and investment horizon. Is the investor a young professional with children, a mature person looking forward to retirement, or a retiree looking for a reliable income supplement?
Those with a greater risk tolerance may favor investments in growth stocks, real estate, international securities, and options, while more conservative investors may opt for government bonds and blue-chip stocks.
A portfolio investment can be anything from a stock or a mutual fund to real estate or art.
On a larger scale, mutual funds and institutional investors are in the business of making portfolio investments. For the largest institutional investors such as pension funds and sovereign funds, this may include infrastructure assets like bridges and toll roads.
Portfolio investments by institutional investors generally are held for the long term and are relatively conservative. Pension funds and college endowment funds are not invested in speculative stocks.
Portfolio Investments for Retirement
Investors saving for retirement are often advised to focus on a diversified mix of low-cost investments for their portfolios.
Index funds have become popular in individual retirement accounts (IRAs) and 401(k) accounts, due to their broad exposure to a number of asset classes at a minimum expense level. These types of funds make ideal core holdings in retirement portfolios.
Those who want a more hands-on approach may tweak their portfolio allocations by adding additional asset classes such as real estate, private equity, and individual stocks and bonds to the portfolio mix.
Do'stlaringiz bilan baham: |
