What Is An Investment Portfolio?

What Is An Investment Portfolio?

by Jun 21, 2018

The world of finance and investing, much like any other highly specialized industry, comes with a vast trove of its own jargon. Terms like investment portfolio, asset class, risk tolerance, and many others are frequently used when speaking with financial professionals, and for those new to the world of financial planning, it can quickly become overwhelming.

For those who are interested in putting their money to work for them, and want a better return than what a local bank savings account pays, it’s a good idea to get familiar with as many of these terms and concepts beforehand as possible.

We’ll start by answering a simple question: what is an investment portfolio?

What Is An Investment Portfolio?

Put simply, an investment portfolio is a collection of a company or individual’s investments. It includes stocks, bonds, cash, real estate, and other assets that are held. Assets are generally described as anything someone invests money in with the hope that it will build future wealth.

For example, if someone buys a piece of fine art that they expect to go up in value over time, that piece of art will be included in the investment portfolio.

Investment Portfolio Asset Classes

One way to visualize an investment portfolio is as a pie (or more specifically, a pie chart). The whole pie represents all the money that you have invested. Each slice of pie represents how much money you have invested in a certain type of asset, called an asset class.

There are three main asset classes in the world of finance: stocks, bonds, and cash equivalents (which includes actual cash). So now our investment portfolio pie has three slices. They may be equal, but most likely not.

Choosing how much money to invest in each type of asset class is called asset allocation, which is just a fancy way to describe how much money someone has invested in stocks, bonds, and cash equivalents. An simple example would be having 60% invested in stocks, 20% in bonds, and the remainder in cash equivalents.

How To Build An Investment Portfolio

Building an investment portfolio, while technically possible to do without the assistance of a financial planner, is a lot of work and requires constant attention and management to be successful.

It’s important to know that not all investments are the same, and some carry much more risk than others. Finding the right mix of stocks, bonds, and other types of investments often requires a trial-and-error approach, and there’s no guarantee that it will be successful.

The shortcut to successfully creating a successful investment portfolio is to work with a capable financial planner who knows what to invest in, and how to maximize return while minimizing risk. A good financial planner will create a customized portfolio for each client, factoring in the amount of risk they’re willing to take versus the amount of return they want to achieve.

To learn more about creating an investment portfolio, please contact us today and we’ll be happy to evaluate your needs and create a portfolio that works for you.