An investment portfolio, also known as an investment structure, is a collection of financial investment products. Each investor may own different investment portfolios, along with different strategies to mitigate risk. Investment portfolios may include stocks, cash, futures contracts, and more.
Investors can choose to manage their investment portfolios themselves or delegate the authority to a fund manager, financial advisor, or other financial expert to assist in managing their investment portfolios.
Although stocks, bonds, and cash are typically seen as the core building blocks of an investment portfolio, you can also develop an investment portfolio with various types of assets, such as real estate, gold stocks, certain types of bonds, artwork, and other collectibles.
Diversification of an investment portfolio is a strategy of allocating investment capital into various types of securities or stocks to achieve high returns and reduce risk. In case one of the invested products experiences volatility, there are still other growth options to compensate for it.
While diversification of an investment portfolio cannot entirely eliminate risk, it can reduce it to some extent. This investment strategy is similar to the principle of "not putting all your eggs in one basket."
For example, instead of solely focusing on stocks of Company X, you would diversify your investment portfolio by investing in stocks from various sectors. Examples include stocks in the banking, finance, healthcare, and energy sectors.
There are several types of investment portfolios:
Safe Investment Portfolio: This investment portfolio has a normal risk level with low returns. It includes short-term loans, bonds, etc., with low risk. The products in this investment portfolio are usually less affected by market fluctuations.
Aggressive Investment Portfolio: This investment portfolio has a high risk level with high returns, mainly invested in stocks. The aggressive investment portfolio is usually managed by investors who are not afraid of strong fluctuations. The stocks in this portfolio typically have a high beta and are quite sensitive to market fluctuations. Typically, these stocks have a beta of 2 and can double in value if there are significant market fluctuations.
Income Investment Portfolio: This portfolio focuses on generating profits through dividends or distributions to shareholders. The stocks in this group are evaluated as relatively safe and offer good returns. However, these stock groups are highly dependent on economic cycles.
Speculative Investment Portfolio: This type of portfolio is riskier than any other portfolio. Only 10% of total assets should be used for this type of investment portfolio. Following the principle in investment, "the higher the risk, the higher the return," this group of stocks provides investors with many opportunities to rapidly increase their assets, but the risk is also very high.
Mixed Investment Portfolio: This diversifies assets with different levels of risk and returns. This type minimizes risk in case if one asset class declines, it will not affect the prices of other asset classes.