The portfolio is the combination of assets of different investment and mixed to achieve the objective of investor (s). The elements which are considered as part of your portfolio can include all the property that you own - tangible elements set as art and real estate, stocks, income instruments cash and their equivalents. With the application of this article, we will focus on most types of liquid assets: equity, fixed income and cash and equivalent titles.
An easy way to think that the portfolio is to imagine a PieChart, the parties represent the type of vehicle that you have allocated a certain part of the whole of your investment.
The mixture of property that you choose according to your objectives and the strategy will determine the risk and performance of your portfolio.
Basic types of portfolios
In General, aggressive investment strategy - a shoot for the highest possible return more suitable for investors who, in the interest of this high-performance potential, have a high risk tolerance (can stomach the wide fluctuation) and a longer time horizon. Dynamic portfolio generally have investments in shares.
A conservative investment strategy, which puts the safety of high priority, most suitable for investors who are at risk have refused and have a short time horizon. Conservative Portfolio would generally consist primarily of cash and cash equivalents or fixed income of high-quality instruments.
To indicate the type of posting for this strategy, we will see a sample of dynamic portfolio moderate and conservative.
Note that the term cash and money market refers to short-term investments, fixed income securities. The money in a savings account and certificates of deposit (CD), which pay a slightly higher interest rates, is an example.
The main objective of the strategy of the conservative portfolio is to maintain the real value of the portfolio, or to protect the value of the portfolio against inflation.
Very aggressive portfolio is designed for people with a horizon tolerance and risk of longer time on average. Investors who find that the kind of interesting Portfolio seeks to strike a balance between the amount of risk and return are contained in the Fund.
The portfolio will consist of about 50-55% equity, bonds of 35-40%, 5-10% cash and equivalents.
You can further break down the above asset classes in subclasses, which were also the different risks and potential benefits. For example, an investor could divide equity among large enterprises, small businesses and international companies. Links can be assigned between persons who are in the short term and long term, the Government against the debt of the company and so on. Investors are more advanced may also have some alternative assets such as options and futures contracts in the mixture.
Everything revolves around diversification. Different under different titles at any point in time, therefore with a mixture of types of assets, the portfolio you all suffer from the impact of a decrease in security one. When your stock breaks down, you may still stability of bonds in your portfolio.
There were all kinds of academic studies and the formula that practice demonstrates why diversity is important, but it is really just a simple "do not put all your eggs in one basket". If spread you your investment and markets of various types of assets, you will reduce the risk of loss of financial disaster.
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