Key Takeaways

  1. A Portfolio is just a collection of different types of financial assets.
  2. Conservative, aggressive and balanced are the three types of portfolio.
  3. The portfolio includes financial assets such as stocks, bonds, mutual funds, exchange-traded funds (ETFs), cash, and cash equivalents.

Portfolio meaning in finance

A portfolio is a group of all the financial assets which an investor owns. Investors create their portfolios after analyzing their risk and return characteristics and requirements.

Portfolio Meaning

What do you mean by portfolio?

A Portfolio is just a collection of different types of financial assets. Assets can be anything that adds to your net worth, such as bonds, stocks, cash, cash equivalents, and funds like mutual funds and exchange-traded funds. An Investor’s portfolio can also include some non-tradable securities, private investment, and real estate. Portfolios are managed by the financial professionals, or an individual investor can also manage their portfolio. The portfolio is framed or maintained according to the investor’s objective and time frame. When an investor is looking for stability and does not want to be involved in any risk, then he\she may prefer a conservative portfolio. When the investor is ready to take higher risk, he\she can adopt an aggressive portfolio. It means that investor’s risk tolerance has a significant impact on portfolio management.

Portfolio Investment / Portfolio Management

Portfolio Management meaning

In portfolio management, the investing approach is to evaluate individuals’ investments by their contribution to the risk and return of an investor’s portfolio. 

Everyone’s spending pattern is different. The spending of a person over age is different from his\her earnings. So, to fill the gap, people hope to have a fund or an investment on the side, which can generate those cash flows to balance their earning vs. their spending. While managing the portfolio, an investor has to maintain diversification and at the same time investor has to compare the strategies with different parameters like liquidity, volatility, etc. It helps the investor to understand how much risk an investor can take. According to modern portfolio theory, an investor should maintain a diversified portfolio. It’s like don’t put all of your eggs in a single basket but select the right ones. Your return on investment could be lower than you expected. An optimal portfolio can be achieved by selecting the right combination of assets. Portfolio diversification helps investors avoid any unwanted investment outcomes. Portfolio diversification also helps investors reduce risk.

What are the 3 types of Portfolio?

The Conservative Portfolio – Investors who want to invest at a minimal risk opts for conservative portfolio. In this type, an investor always considers large-cap companies growth stocks for an investment.

The Aggressive Portfolio – When an investor is ready to take a higher risk for higher outcomes, an investor opts for an aggressive portfolio. The assets which are included in an aggressive portfolio have a higher risk and higher volatility in the overall market. The price of these assets fluctuates rapidly in the market. In this segment, an investor can invest in stocks of some small-cap companies. 

The Balanced Portfolio – most of the investors use this approach to balance the risk and return by investing in stocks and bonds.

What is included in the portfolio?

The portfolio includes financial assets such as stocks, bonds, mutual funds, exchange-traded funds (ETFs), cash, and cash equivalents. A portfolio can also include some non-tradable securities, arts, and real estate.

Portfolio Analysis

Portfolio analysis is the process of analyzing an investment portfolio to know its appropriateness for a given investors’ preferences, needs and resources. It also determines the likelihood of meeting the objectives of a defined investment mandate, importantly on a risk-adjusted basis and keeping in mind the historical performance of an asset class, inflation and other factors.

Portfolio Management Service

PMS is a facility offered by a fund manager with the intent to attain the required rate of return, given a desired level of risk. A portfolio can be made up of stocks, bonds, commodities, real estate, alternative assets, and cash. A fund manager is a licensed professional who specializes in analyzing a client’s investment objective, using his vast knowledge about the gamut of instruments used in the markets. PMS is a customized service offered to high-net-worth individuals by these above-mentioned fund managers.

What is portfolio and example?

What is a portfolio in trading?

Consider the following hypothetical table:

Name of the stock/ETF Purchase Price (Rs) Current Market Price (Rs) Gains/Losses (Rs)
HDFC Bank 1000 1650 650
Reliance 1500 2100 600
Bharat Bond ETF 1000 1000 0
Total 3500 4750 1250

The above table is an example of a portfolio.

What is in a good portfolio?

A good portfolio is one that is consistent with the goals, preferences and needs that you are trying to fulfill. It should be well diversified, with risk parameters within the permitted limits. The portfolio is usually a mix of equity, bonds, commodities and other asset classes. Further, it is always good to divide your investments in equities into large, mid and small cap.