A portfolioOr also known as an investment portfolio, it is the combination of certain investments that are carried out by an individual or a certain institution. These investment portfolios can be formed through various elements selected by the investor where they must take into account some basics, such as the level of risk you are willing to take, as well as the goals you want to achieve with your investment.
It is a collection of different instruments or financial assets that an investor has, among them are They find bonds, foreign currency, options, company stocks, gold and the securities of property.
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It is made up according to the risk profile of the investor, but despite this, in the case of investment funds, the portfolios are already established by financial institutions where investors enter depending on their tolerance for risk and can be managed personally or through funds from investment.
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In this article you will find:
Composition of an investment portfolio
The composition of an investment portfolio is due to the operation of the investor's profile, where it can be risky or conservative, depending on the risk they are willing to take. assume the investor and the composition of the securities portfolio, on which the final profitability obtained from the proportion of each of the assets of the purse.
This composition can be differentiated into two types of portfolio, this will depend on the time of the assets. These wallets are:
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Debt portfolio
It is about the investment of short-term assets, since most debts arise to buy or sell assets quickly.
Loan portfolio
It is one where the long-term investment is maintained, to achieve profitability for longer.
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What is the efficiency of a portfolio?
The terminology of efficiency contains a very concrete meaning within the context of portfolio management. This is due to its efficiency within a set of specific investment assets, such as stocks, commodities premium, bonds, and money market elements, where the highest rate is formed for a level of risk wanted.
In general, this is the main characteristic of an efficient portfolio, despite this, there are other instruments that each of the types of portfolio may have.
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Steps to design an investment portfolio
Before creating it, it is necessary to develop an investment strategy, which can help define its optimization, which is made up of financial assets so that a favorable balance can be obtained between return and risk that will depend on certain features.
The design will depend on the strategy and the risk you want to run, as well as the conditions and steps that must be taken into account when carrying it out. Among them are:
Determine investment objectives and risk profile
In this first step you have to define the amount of money you have available to carry out the investment, what is expected of its profitability and also the level of risk it has, even when they are interdependent. It is important to know that investors can be natural or legal persons and the way in which the level of risk is defined in each person is different.
It is necessary to define the risk profile through a questionnaire containing personal or company information on the level of income, age, assets, information that determines a conservative, moderate or aggressive. The higher the profitability that is expected, the greater the risk that is run.
Make a selection of investment projects or financial instruments
A portfolio is made up of a fixed rate portion such as bonds and a variable rate portion such as actions, also for the investment of financial entities or for various investment projects own. In each of the alternatives, the following information should not be missing:
- Profitability of the last year.
- Administration of the investment fund or the company.
- Volatility of the last year.
- Information on the inherent risks.
- Prospects for the future of the market.
Select economic and business sectors
Initially, economic sectors can be selected according to investor preference or as a hedge. Most investors might prefer stocks that are in the tech or industrial sector.
Despite this, if it is a company that makes the investment, it is possible that the choice of economic sectors is made as a hedge where it is selected an efficient sector when the company is not or in the event that the companies belonging to the same sector are stable, even though there is a season of crisis.
Measure return and risk of assets
In the development of this step, a statistical analysis of the history of the different actions must be carried out in order to make an observation of the behavior of recent years and thus determine its historical profitability, its expected profitability and the variance that indicates the risk of the assets.
Optimize the investment portfolio
When the assets to be taken into account are already defined, the portfolios must be created optimal, which are those that allow greater profitability to occur at a risk level dices.
Portfolio performance and volatility
The return on the portfolio is the percentage of the profit or loss and also the risk of volatility or the total standard deviation of the returns. Investors understand that any risk could allow the loss of all or much of what has been invested.
The source of risk is an uncertainty that basically comes from ignorance of what exactly could happen in the future. The volatility provides the information regarding the average magnitude of the uncertainties of the profitability in relation to the value that is expected of it and to what it will or will not achieve in the performance that expected.
