Saturday, May 10, 2014

Investment Portfolio

A portfolio is the securities held by an investor; that is the investments that you own. The key to a successful portfolio is balance and foresight in planning the appropriate mix of investment vehicles that to suit one’s income and needs for the moment and the future. One should diversify only within his risk tolerance in order to meet the return targets he has set for himself.

        All investors would like to go for maximum yields and minimize risk. In general, however, riskier investments offer greater potential rewards while safer investment havens have much less yield. Government bonds, for example, are backed by the government and are stable but their yields are the lowest. Stocks, on the other hand, can double your money but you can lose shirt twice as fast.

        In building your investment portfolio, your age and your investment objectives should be taken into account. If you are over sixty, your main concern should, ideally, be the safety of your investment and the income you can derive from it. This means you should put your money in investments that are relatively safe and which produce enough income to pull you through during the years when you are no longer earning. If you are a working middle-aged person (40 to 60 years old), your investment portfolio should allow more growth since your future is not totally behind you. You are slowly but surely shifting your investment from high growth areas to those which are nearer the safety and income corners. If you are younger than both categories, chances are you may need a smaller amount of fixed income and safety in your investment and a higher potential for growth compared to an older person. This means you should allow for relatively equal degrees of growth, income, and safety potential in your portfolio.

        A typical conservative portfolio would have a lot more bonds than equities and non-traditional investments. While this will assure capital protection, it might not offer much in terms of growth. In contrast, a high growth fund will have more equities than bonds. It will not ensure the safety of capital but it could offer substantial yields. A balanced fund will be somewhere in between.

        Remember that all investments vehicles – time deposit, bonds, or stocks – are affected by a variety of factors such as economic growth, foreign exchange changes, inflation, interest rates and even political changes.

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