What is a Portfolio Investment
Portfolio investments are passive investments in a portfolio. They are made because the investor expects a return. The return which the investor expects or expected return has a direct correlation to the expected risk of the investment.
Many people confuse portfolio investment with direct investment. Direct investment is different from portfolio investment because direct investments usually involve taking a large stake in a company. Sometimes this also means that the investor is involved in the daily management of the company.
A deeper look at portfolio investments
When you take a deeper look at portfolio investments, you will notice that they cover a wide range of asset classes. Some of these asset classes include stocks, treasury bills, government bonds, corporate bonds, mutual funds and so on. Options, derivatives (warrants, futures), physical investments (commodities, real estate, land) are also sometimes included in portfolio investments.
Depending on many factors, the composition of portfolio investments is different. The most important factors are the risk tolerance of the investor, investment horizon as well as the amount invested. Young investors with limited funds are usually advised to invest in mutual funds or exchange-traded funds as they are much safer portfolio investments. Individuals with a higher net worth are usually advised to invest in stocks, bonds, commodities, and rental properties.
Institutional investors usually make portfolio investments into a large number of infrastructure assets such as toll roads and bridges. Institutional investors usually need to invest in portfolio investments with very long lives so that the duration of their assets and liabilities match.
A look at how the circumstances of the investor affect his/her portfolio investments
Portfolio investments depend largely on the circumstances of the individual in question. Investors with a higher tolerance for risk usually favor investments in stocks, real estate, international securities and so on. Investors who play on the conservative side usually invest in government bonds and stocks of large, well-known companies.
The risks are also weighed against the goals of the investor as well as his/her time horizon. Young individuals saving for retirement usually has about 30 years or sometimes a little bit more to save. He/she might not be comfortable with the risks of the stock market. This young person might want to opt for more conservative portfolio investments even though he/she has a long-term horizon. On the opposite end of the spectrum, people with high-risk tolerances are usually advised to avoid large allocations to riskier growth if they are close to the retirement age. Usually, a progression to portfolio investments that are more conservative in nature is recommended as an investment goal draws near.
If you’re saving for retirement, have a look at this:
If you’re an investor and are saving for retirement. You should focus on many different low-cost investments for your portfolio. Index funds are popular in many retirement accounts of individuals which are IRAs and 401k accounts. This is because they have a broad exposure to many different asset classes while keeping expenses low. These types of funds are usually the best core holdings in portfolios for retirement. If you would like to take a more hands-on approach, you could try tweaking your portfolio allocations by adding additional classes. Examples of classes include but aren’t limited to real estate, private equity, individual stocks, bonds and so on.
Portfolio investments should be looked into as early as possible if you’re looking at keeping yourself comfortable well into retirement. If you’re getting close to retirement and still haven’t built any portfolio investments, you can still benefit from them. However, you might need to take a couple of risks to benefit. Now, in this day and age, the more money you have saved for retirement, the better.