What is Portfolio Analysis or Portfolio Management?
Portfolio management is the practice of studying and reviewing shareholder portfolios to know the different stocks with the number of shares and their average price. The portfolio is based on the risk appetite and investment goals of an investor. This is a simple explanation of what is portfolio analysis or management. This practice helps the investors in the decision-making process by telling them which stocks to buy and which stocks to sell at the current price to have the best stock portfolio. A stock portfolio has many stocks, and thus they have to be analyzed regularly to generate higher returns.
What are the different types of portfolio investments for stock markets?
There are multiple types of portfolio investments that are highlighted in this article. These stock portfolios differ from each other based on the risk involved and the investors’ financial goals. An ideal investment portfolio is quite balanced in every aspect and delivers enough returns for the investor to meet his financial goals.
Let’s look at some of the types of portfolio investment in a bit more detail to understand better.
- Aggressive Investment Portfolio: As the name implies, this shareholder portfolio is for investors with a high appetite for taking risks. The expected returns are higher; however, the risk incurred is also higher. Stocks in this portfolio usually have a high beta of 1.5 to 2 that are otherwise considered risky bets. Beta measures the volatility of the portfolio against the market as a whole. Beta of the market is 1.
- Balanced Investment Portfolio: This is among the moderately risky portfolio investments. Investors here have a decent appetite to incur risk, and they are in the game with a long-term horizon. A balanced portfolio usually comprises 55-60% equity shares and 25-35% debt securities like bonds, commercial papers, government securities. The remaining portion is either cash and cash equivalents or gold.
- Conservative Investment Portfolio: As the name suggests, this is a shareholder portfolio for the risk-averse conservative category of investors. Safety of returns is the priority here, instead of the quantum of returns generated. Asset classes in this type of portfolio mainly comprise debt securities, cash, and blue-chip stocks that are less volatile and thus relatively safe.
- Income Portfolio: This is the best stock portfolio for investors who want a regular and steady flow of income through investing. This portfolio type does not emphasize capital appreciation in the long run; instead, it focuses on stable returns via dividends.
- Hybrid Portfolio: You will get the best of both worlds in a hybrid stock portfolio, as it is a perfect combination of a growth stock and dividend-paying stocks. Thus, you will get a steady flow of income via dividends, and capital appreciation will also happen in the long run. It is an ideal investment portfolio as it has a mix of equity, bonds, gold, mutual funds, etc.
- Speculative Portfolio: This is one of those rare types of portfolio investment that is equated to gambling at times. The investor here is speculating on a particular sector or product/service that will boom in the coming years. Thus, it is an aggressive portfolio with high concentration risk. For instance, an investor with all the power companies in his portfolio expecting them to make Lithium-ion batteries for electric vehicles five years down the line is an example of a speculative portfolio for the stock market.
- Value Portfolio: A value portfolio is considered to have value stocks currently trading at a lower Price-to-Earnings ratio. This could turn out to be the best stock portfolio if you can buy stocks at cheap valuations now with real value yet to be unlocked. These stocks could also be currently trading at a lower price due to distress in the industry or the company. An ideal investment portfolio focuses on value investing, which is the bedrock of investing for the long term to create wealth.
- Growth Portfolio: This type of portfolio looks for capital appreciation with a long-term investment horizon through investment in growth companies. Growth companies are the ones that are expected to grow at a pace out beating its competitors. Thus the risk-to-reward ratio is higher in this portfolio and also the dividend is not a focus in the growth portfolio.
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This is all we had for you in this edition of types of portfolio investments. We hope you have a better understanding of what portfolio management is and the different types of portfolios. The bottom line is, the ideal investment portfolio for you is the one that helps you achieve your financial goals and also matches your risk-taking capability. Choose the one that suits your needs.
The best investment is the one that helps you meet your financial goals at the right time. If you have multiple financial goals, you might need to invest in risky asset classes, searching for higher returns.
Aggressive, balanced, and conservative portfolios are mainly three types of portfolio investments based on risk incurred.
It is a process of analyzing an investor’s portfolio to make informed decisions on buying and selling decisions to earn higher returns.
A conservative portfolio having higher weightage to fixed income instruments, cash and cash equivalent, bank deposits with low equity exposure is an ideal investment portfolio for a retired person.
Considering lesser responsibilities and a higher risk appetite, an ideal stock portfolio for a young working professional could be an aggressive portfolio having more high beta stocks.