Components of a Portfolio
Different types of asset classes comprising various securities combine to form the components of an investment portfolio. The investors must make sure that their portfolio consists of a good combination of assets that has the potential for capital growth with limited or controlled risk. The following lists the components of an investment portfolio.
1. Stocks or Equity: One of the most common components of an investment portfolio is the Stocks, which refers to the shares of the company and ownership of investors in the company. Stocks are the depiction of the overall share capital of a particular company traded over the stock exchanges. The portion of ownership owned by an individual is determined by the number of shares held by the individual. The individual is known as the shareholder or stockholder, who has accredited a portion of the company’s profits in the form of dividends. Investors can generate higher returns by selling the stock they hold at a higher rate in the stock market with a potential risk factor. Hence, stocks are known to be a reward-generating component of an investment portfolio.
2. Bonds: Another component of an investment portfolio is the bonds, which are investment securities where investors lend money to the government or a corporation for a specified period with the condition of receiving regular interest payments. Bonds have a predefined maturity date, after which the principal amount is returned to the investor along with the interest amount. Compared to stocks, bonds are a little less risky and thus offer low returns. Hence, bonds are known to be the risk-protecting component of an investment portfolio.
3. Alternative Investment Options: An investment portfolio might consist of other forms of investment such as oil, real estate, gold, commodities, etc. These are assets that grow in value and multiply with time. These alternative investment options are not commonly traded compared to the traditional investment options of bonds and stocks.