Types of Portfolios

Investment portfolios are of different types and investors believe in creating a portfolio that would fulfill their investment objective and risk appetite.

1. Growth Portfolio: The prime objective of this portfolio is to foster growth by considering the potential risks and investing in the companies that are growing. Higher returns and higher risk are part and parcel of the growth portfolios. Usually, investments in younger companies have the potential for higher growth compared to those already established big corporations.

2. Income Portfolio: An income portfolio’s prime goal is to maintain a continuous flow of income from the different investment options instead of focusing on potential capital growth. For example, income-minded investors would rather invest in stocks that reap regular dividends, than the trend of growth in value. Further, fixed-income assets generally offer regular income to investors, thus investors looking for steady returns can invest in this form of portfolio.

3. Value Portfolio: In a value portfolio, investors purchase cheap assets due to their low valuations and look for opportunities to generate profits in the investment market. During economic turmoil, when companies and markets struggle to survive, these portfolios are used by value-oriented investors as they can invest in those shares of companies whose prices have lowered compared to the fair value. Again when the market revives, investors in these portfolios can generate higher profits by selling their investments.

Investment Portfolio : Components, Types, Risks & Advantages

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What is Investment Portfolio?

An Investment Portfolio (or financial portfolio) is a combination of financial assets an investor owns, including stocks, bonds, money market instruments, cash and cash equivalents, and other financial or non-financial assets. Further, a portfolio investment refers to the group of investments formed in the expectation of earning a return or the value growing with time. This differs from direct investment which includes an active management role, whereas portfolio investment involves passive or indirect ownership of assets or management roles. Investors here look for significant returns supporting their financial goals and risk appetite....

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....

Types of Portfolios

Investment portfolios are of different types and investors believe in creating a portfolio that would fulfill their investment objective and risk appetite....

Investment Portfolios and Risk Tolerance

Risk is the degree of uncertainty or potential downs in the financial market due to the poor performance of an asset class or the market as a whole. The risk tolerance or risk appetite of investors is basically how much the investor is willing to invest and how long can the investor tolerate depending on the volatility of the market. This risk tolerance affects the allocation of funds and financial assets into the investors’ investment portfolio....

Steps of Building an Investment Portfolio

There exists a process of building an investment portfolio. The following steps show how an investment portfolio be built....

Importance of a diversified portfolio

The importance of a diversified portfolio is listed below,...

Advantages of Portfolio Investment

1. Mitigation of Risk: The prime objective of building a portfolio is to reduce risk while averaging the returns from each asset. In other words, the portfolio offers robust resistance toward unavoidable risk while generating steady returns....

Disadvantages of Portfolio Investment

1. Higher Transaction Cost: The frequent buying and selling of assets in the market within the portfolio can sometimes incur transaction costs such as brokerage fees, commissions, and charges for trading in the exchange market. This might decrease your return value and reduce the profit on the portfolio....

Frequently Asked Questions (FAQs)

1. What does an ideal investment portfolio look like?...