What is a portfolio?
A portfolio is a combination of publicly tradable assets such as currencies, stocks, bonds, mutual funds, etc. and non publicly tradable assets such as lands, real estate, etc. Source: investopedia.com
Investors can have a portfolio made of similar assets such as real estate or a combination of multiple assets such as real estate, stocks, mutual funds, etc. Their asset allocation strategies depend on their risk tolerance and investment strategies.
Investors manage their portfolios or hire professional managers.
Types of portfolios
Depending on investment strategies, there are three types of investment portfolios.
1. Growth portfolio
Growth portfolios have a mission of obtaining high growth. Assets with high growth potential are the ones investors allocate in these portfolios. These assets are usually made of high growth stocks from younger companies.
By investing in younger companies, investors hope for a bigger return once these companies become big and profitable. In general, growth portfolios focus on capital gain from investments.
High growth portfolios are prone to high risks because of the high volatility of their assets. The returns from these assets can also be great if they appreciate at rates predicted by investors.
2. Income portfolio
Income portfolios are made of income-producing assets. That is investors with these kinds of portfolios focus on regular income rather than growth or capital gain.
For example, investors can buy rental properties because they want to make rental income. Or they can buy stocks because of dividends income.
It is also possible to have rental properties, stock dividends, rental cars, etc. in your income portfolio.
3. Value portfolio
Market fluctuations due to economic conditions increase or decrease the value of assets across many sectors. These conditions create an opportunity for investors who want to acquire assets at low prices.
Investors select assets based on their values rather than speculations. The idea is that if a company is valued for less due to a recession, for example, its value will go back to what the company is worth once a recession is over. For this reason, investors will put money in this company based on this valuation.
Final words
There is no single model that fits every portfolio. Assets you acquire and how much percentage each takes in your portfolio depends on your investment strategies and risk tolerance.
As an investor, you must focus on what makes you comfortable in your investment journey. You don’t have to follow a model of successful investors because they said it works. You can still lose by following it. Your portfolio is your responsibility.
Happy investing!
