What is an Investment Portfolio?

An investment portfolio is a collection of financial assets owned by an investor (an entity or an individual). These financial assets come in different flavors; they include shares, bonds, commodities, currencies, cash and cash equivalents (CCE). When used in the context of wealth creation, an investment portfolio is typically used by investors and wealth managers to generate profit, while ensuring the preservation of capital and assets.

Asset Classes

An investment portfolio contains assets, which are organized in groups called asset classes. Traditionally, there have been 3 main asset classes:

  • Equities, also known as Stocks or Shares
  • Fixed Income, also known as Bonds
  • Cash Equivalent, or Money Market Instruments

In recent years, investment professionals include real estate, commodities, futures, other financial derivatives; and even cryptocurrencies in the asset class mix. These are called alternative investments.

Asset classes have been observed to evolve with time

Investment Portfolios with balanced Asset Classes mitigate risk

As an investor, or wealth manager, the best tool you have at your disposal to mitigate the risks of your investments is a well-balanced portfolio. In practice, this equates to having a globally diversified portfolio which follows a predetermined course for asset allocation. This predetermined course is typically documented in an Investment Policy Statement. The latter document elaborates on an investor’s goals, risk appetite (risk tolerance), asset allocation targets, and how the investor’s money must be invested. It is basically a blueprint upon which the investment portfolio is to be constructed.

A diversified investment portfolio can help to manage risk

Types of Investment Portfolios

Portfolios come in various types, according to their strategies for investment. 

Growth portfolio 

A growth portfolio’s aim, as suggested by its name, is to promote growth. This typically means taking greater risks, including investing in developing industries. Portfolios focused on growth investments usually come with greater potential rewards, and concurrent higher potential risk. Growth investing often involves investments in younger companies which offer greater potential for growth and expansion.

Income portfolio

An income portfolio is more focused on securing regular income from investments. This means that income portfolios are less inclined to bet on potential capital gains. An example is buying shares based on the share’s history of dividend payments rather than on its documented history of share price appreciation.

Value portfolio 

Investors who manage value portfolios take advantage of buying cheap assets by valuation. A value portfolio is particularly useful during difficult economic times (such as the recent COVID19 pandemic), when many businesses and investments struggle to survive and stay afloat. In such circumstances, value investors search for companies that are currently priced below what normal analysis would deem their fair market value to be, but which have good potential for growth and / or profitability. In other words, value investors are on the constant lookout for “good deals” available on the market.

AXYS creates wealth with rational financial advice

To create an investment portfolio that reflects their clients’ investing style, a financial advisor must first lend a careful ear to each client’s objective. AXYS advise clients on how to better invest their wealth. Get in touch with us now.

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