BROWSE

Portfolio

The grouping together of financial assets like cash equivalents, bonds, stocks and their counterparts whether they are closed fund or exchange related is known as a portfolio. These portfolios are managed by financial professionals but are held by investors.

Understanding Portfolio

A portfolio should be assembled after keeping the investing objectives and risk tolerance in mind. Let’s take an example to understand it better. Think of the portfolio as a pie that is divided in different slices that represent different types of investments so a risk-return portfolio allocation can be determined.

Portfolios are favored according to a person’s temperament. If an investor is conservative, they would prefer a portfolio that has broad market index funds, large cap value stocks, investment bonds, and high liquid cash equivalents. On the other hand, someone who loves taking risks might prefer a high-yield bond exposure, a large cap growth stock position, and other alternative means to add to their portfolio.

How to Create an Investment Portfolio

Here are some ways in which you can create an investment portfolio:

  • See your future goals. You must know when you will need the money and how much of it.
  • If you have long term goal in mind, you should know that time determines how the returns on volatile investments will be. People who have a long term goal in mind generally prefer volatile assets that include commodities and small cap stocks.
  • If you have short term goals in mind don’t invest in volatile investments because they will work against you.
  • Be on a lookout for inflation because if you have a fixed income, it can affect your buying power and regular payments.

With investment comes risk, so if you want to minimize the repercussions, go for FIDC inspired products like a certificate of deposit. Invest in different asset types in order to control the volatility of a portfolio. You can also go for commodities because they counteract inflation, as their prices go up with inflation. Lastly, know the things that are a part of your investment portfolio even if the values are not updated.


Further Reading


A survey on multiobjective evolutionary algorithms for the solution of the portfolio optimization problem and other finance and economics applications
ieeexplore.ieee.org [PDF]
Neoclassical financial models provide the foundation for our understanding of finance. This chapter introduces the main ideas of neoclassical finance in a singleperiod context that avoids the technical difficulties of continuous-time models, but preserves the principal …

International portfolio choice and corporation finance: A synthesisInternational portfolio choice and corporation finance: A synthesis
onlinelibrary.wiley.com [PDF]
Neoclassical financial models provide the foundation for our understanding of finance. This chapter introduces the main ideas of neoclassical finance in a singleperiod context that avoids the technical difficulties of continuous-time models, but preserves the principal …

Are Islamic finance innovations enough for investors to escape from a financial downturn? Further evidence from portfolio simulationsAre Islamic finance innovations enough for investors to escape from a financial downturn? Further evidence from portfolio simulations
www.tandfonline.com [PDF]
Neoclassical financial models provide the foundation for our understanding of finance. This chapter introduces the main ideas of neoclassical finance in a singleperiod context that avoids the technical difficulties of continuous-time models, but preserves the principal …

Portfolio analysis, market equilibrium and corporation financePortfolio analysis, market equilibrium and corporation finance
www.jstor.org [PDF]
Neoclassical financial models provide the foundation for our understanding of finance. This chapter introduces the main ideas of neoclassical finance in a singleperiod context that avoids the technical difficulties of continuous-time models, but preserves the principal …

Households' portfolio choices.Households' portfolio choices.
elibrary.ru [PDF]
Neoclassical financial models provide the foundation for our understanding of finance. This chapter introduces the main ideas of neoclassical finance in a singleperiod context that avoids the technical difficulties of continuous-time models, but preserves the principal …

Robust portfolios: contributions from operations research and financeRobust portfolios: contributions from operations research and finance
link.springer.com [PDF]
Neoclassical financial models provide the foundation for our understanding of finance. This chapter introduces the main ideas of neoclassical finance in a singleperiod context that avoids the technical difficulties of continuous-time models, but preserves the principal …

Why do individual investors hold under-diversified portfolios?Why do individual investors hold under-diversified portfolios?
ideas.repec.org [PDF]
Neoclassical financial models provide the foundation for our understanding of finance. This chapter introduces the main ideas of neoclassical finance in a singleperiod context that avoids the technical difficulties of continuous-time models, but preserves the principal …

Portfolio selection with transaction costsPortfolio selection with transaction costs
pubsonline.informs.org [PDF]
Neoclassical financial models provide the foundation for our understanding of finance. This chapter introduces the main ideas of neoclassical finance in a singleperiod context that avoids the technical difficulties of continuous-time models, but preserves the principal …



FAQ


What is a portfolio?

A portfolio is a collection of investments.

What does the term portfolio refer to?

How are portfolios held by individual investors or managed by financial professionals, hedge funds, banks and other financial institutions?

Portfolios may be held by individual investors or managed by financial professionals, hedge funds, banks and other financial institutions.

What does it mean for an investor to have risk tolerance?

An investor with risk tolerance will invest in assets that have a greater expected gain but also carry more risk.

What is meant when an investment has a greater expected return?

The investment has a greater expected return if it has higher returns than another investment with similar risks.

Why do people want to minimize their risks in investing?

When determining asset allocation what aim should you try to achieve?

You should try to maximize the expected return while minimizing the risk. This is an example of multi-objective optimization problem because there are many efficient solutions available and you must choose one based on your tradeoff between risk and return. In particular, if no solution dominates another then they are all Pareto optimal . The set of Pareto optimal returns and risks is called the efficient frontier .

Is there only one efficient frontier ?

No , there can be multiple efficient frontiers depending on how much risk you want to take on as well as your time frame for investing .

If I am not sure which asset allocation would work best for me , how can I find out ?

You could use software such as Microsoft Excel Solver or Minitab's Statgraphics' Optimization Toolbox ( OTP ) .

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