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Contents
Investment portfolios are a basket of diverse financial assets owned by the investor in pursuit of achieving their financial goals, whether in the short or long term. The choice of securities added to the portfolio - such as stocks and bonds - is based on several factors, including the investor's goals, risk tolerance, and time horizon, and based on all of the above, the most suitable type of investment portfolio is determined.
Article Summary:
The investment portfolio includes various financial instruments such as stocks, bonds, exchange-traded funds, commodities, real estate investment trusts, and perhaps also valuable collectibles.
Diversifying financial assets creates a balance and flexibility in the investment portfolio, in addition to reducing risks related to a single stock or sector.
The younger the investor, the more they can increase the risky assets in their portfolio; because they have enough time to recover losses if they occur.
The investment portfolio requires continuous monitoring and rebalancing of assets in line with the desired goals.
What are investment portfolios?
An investment portfolio can be defined as a collection of diverse financial assets owned by an investor and held for a specific period with the aim of achieving their financial goals, which may be based on a long or short-term plan. Investment portfolios contain various categories of financial instruments, including stocks, bonds, exchange-traded funds, real estate, real estate investment trusts (REITs), and even cryptocurrencies that are expected to increase in value over time.
There is no such thing as the best investment portfolio since the preference here is relative; it depends on how well the portfolio aligns with the investor's risk tolerance and time horizon, and before all that, their investment goals, which can vary significantly from person to person, such as buying a car, owning a house, or planning for retirement.
Types of investment portfolios
Investment portfolios vary based on the securities they contain and their proportions in the portfolio. The type of portfolio is determined, as mentioned earlier, by the investor's financial goals (buying a house, retirement, travel), as well as the time horizon, which is the duration during which the investor needs to generate returns, which can be short (one year), medium-term (one year to five years), or long-term (more than five years).
There is a strong correlation between the time horizon and the level of risk, so younger investors are more capable of bearing higher risks due to having a longer investment horizon; thus, they may venture into investing in high-risk assets with high returns at the same time. Based on the above, determining your financial goals, the appropriate time horizon, and your risk tolerance are the fundamental pillars for choosing between types of investment portfolios and identifying the most suitable one for you.
Aggressive Portfolio: This portfolio focuses on high-risk investments with the aim of achieving higher profits by taking on greater risks. Investors choose companies that are still in their early stages of growth and have potential for upward movement.
Defensive Portfolio: This portfolio focuses on stable investments that tend to perform well in various economic conditions. Investors choose companies that produce essential goods and services needed by consumers in their daily lives.
Income Portfolio: This portfolio focuses on investments that provide regular income. Investors focus on stocks or other financial instruments that pay high dividends.
Speculative Portfolio: This portfolio focuses on risky investments and contains higher risks than all the portfolios mentioned. Investors choose to invest in initial public offerings (IPOs), company mergers, or companies rumored to be subject to acquisition.
Hybrid Portfolio: This portfolio focuses on other investments in addition to traditional financial instruments such as stocks. Investors may also choose to invest in collectibles such as valuable watches or rare and commemorative coins, which are likely to increase in value over time.
