To invest all means in only one instrument of capital multiplication has always been considered a very risky undertaking. It is much more stable and efficient to distribute funds in different directions so that possible losses in one area are offset by an increased level of income in another. The practical implementation of this idea is an investment portfolio. In fact, it represents the totality of financial and real investments. If we talk about the stock market, then in the narrow sense of the word, this term means absolutely all securities, regardless of type, duration and liquidity, belonging to a legal entity or individual, acting as an integral object of management.
What is an investment portfolio?
Each investor has its own priority between the risks, profitability and liquidity of investments. Depending on the ratio of these factors, we can distinguish a portfolio of growth, income, and mixed, reasonably combining both of these areas. Each of them has its own goals and features. Thus, the investment growth portfolio is aimed at maximizing income in the long term. In this case, the investor refuses high-yield areas that generate income for a short period of time. As a rule, the basis of such a portfolio is securities steadily showing growth, and its purpose is to increase capital by increasing the market value of such assets. At the same time, dividends play a secondary role. The investment income portfolio, on the contrary, aims to maximize profits from each transaction and is designed for maximum profitability in the short term. In this case, the long-term prospect of securities is not critical, and the decisive criterion for choosing securities is high current income, including through dividend and interest payments. The risk of the investment portfolio in this case is significantly higher than the previous option. These two species are extremes that are only relevant in special cases and under certain circumstances. The best thing, of course, is to form a balanced portfolio, or as it is also called, an investment portfolio of growth and income. Its goal is the optimal combination of profitability and risk.
The choice of investment tools
Regardless of the type of portfolio, we recommend diversification everywhere. A huge number of factors affect different papers, and keeping track of all of them is impossible. Therefore, the concept of an investment portfolio involves a reasonable distribution of funds between different types of financial instruments. After choosing a class of assets, it makes sense to distribute funds between different types of securities belonging to this class. For example, if the government decided to focus its efforts on the energy industry, instead of buying a clear leader in all capital, it is better to purchase shares in several companies working in this field. Another option for diversification is the choice of securities with different terms of payment of dividends. This will allow reinvesting in assets whose value has gone up significantly.
Periodic revision
At least once a year, you need to do a comprehensive analysis and evaluate the current distribution of assets and, if necessary, adjust the ratio of assets. At first, it is important to learn how to achieve goals on time in the long term, and as experience accumulates, when there is a sense of confidence in your forecasts, you can adjust the portfolio more often.
Reinvestment
Regular investment of a part of the profit received in assets can greatly increase capital. Moreover, instead of a major contribution at the end of the annual period, it is better to invest 1/12 of this amount on a monthly basis. Although it is quite acceptable to make large investments, if they are at the moment, and the current situation requires quick action.