Investment portfolio: types, principles of formation

Investment portfolio: types, principles of formation — Photo 1

Competent formation of an investment portfolio — one of the main tasks of the investor. In this article, we will tell you what an investment portfolio is, we will talk about some principles of portfolio formation and related nuances.

What is an investment portfolio

If explained in simple words, then in fact an investment portfolio is a collection of financial assets. Formally, even one asset can already be a portfolio formed by an investor.

What is an investment portfolio for: functions

The function of the investment portfolio is to fulfill the investor's investment tasks with the appropriate parameters, for example: 

  • volatility;
  • profitability;
  • riskiness;
  • the structure of cash flows.

Types of investment portfolio

Investment portfolios are classified by types of assets, ratios and instruments included in the portfolio. Let's take a closer look at some types of investment portfolios.

Bond portfolio

This is a portfolio that consists entirely of bonds. Within this portfolio, there may be rules for selecting bonds, for example, rules regarding maturity, issuer, payment dates, bond currencies.

Read also: What are bonds and how do they work

Stock portfolio

This portfolio consists entirely of stocks. There may be internal rules for stock selection, their ratio, and purchase/sale principles for rebalancing. It can also be tied to valuation methods, restrictions on the riskiness of shares and other parameters.

Derivative portfolio

The most risky strategy is the formation of a portfolio of derivative instruments. It is rarely found in its pure form, it usually exists as part of second portfolios.

Mixed portfolio

A portfolio in which there are three assets in different proportions. In this category, more aggressive and protected portfolios are usually allocated:

  • the more bonds in the portfolio, the more protected it is considered to be;
  • the more stocks and options in the portfolio, the more aggressive he is.

Options are considered the riskiest asset, bonds the safest.

FC Daliz-Finance LLC has the ability to purchase military bonds on the secondary market, as well as the experience of purchasing military bonds through primary dealers. In the first months of the war, our clients bought military bonds worth more than 500 million hryvnias. Join their number by submitting an application on our website.

Portfolios using a short position

It is possible to use a " short " position when forming a portfolio. A short position is a bet on a decrease in the value of an asset. At the technical level, the following happens: an investor borrows an asset, sells it on the market, and in a later period buys the asset and returns it to the creditor.

In this case, the investor expects that the asset will fall in price and, accordingly, the initial amount that he spent on the sale of the asset will be greater than the amount for which he will buy it back when the asset is returned. 
As we can see, when the investor is in the position, the money from the first sale is in his hands. Accordingly, the investor can use these funds to purchase other assets. This is a risky strategy and should be used only by professionals who understand the risks and have the ability to cover potential losses.

How to form an investment portfolio

The first step in building a portfolio is choosing a portfolio strategy and goal. After that, you can either try to make a portfolio yourself, but in practice you should turn to a specialist who will help you make a portfolio, or take portfolio management courses.

Management of the investment portfolio is carried out on the basis of different strategies. Within the framework of portfolio investments, it is necessary to have predetermined asset limits, stop-losses, stop-gains and always keep in mind the original goal of the portfolio.

The analysis of the investment portfolio is carried out on the basis of indicators of profitability and volatility.

Read also: How to start investing in Ukraine in 2023

Frequently asked questions: how to make an investment portfolio

What investment portfolio is considered optimal

The portfolio that most accurately reflects the investor's investment goals and is optimized from the point of view of diversification is considered the most optimal.

How to calculate the profitability of an investment portfolio

To calculate the profitability of the investment portfolio, the formula is used: the profitability of each individual asset * the ratio of this asset in the overall portfolio.

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