Managing Investment Portfolio.
An investment portfolio is a set of financial assets owned by an investor.
Financial assets that constitutes a portfolio may include stocks, bonds, mutual funds and cash.
Investors aim to achieve returns by mixing two or more of these assets to form a portfolio in a way that reflects their risk tolerance, investment horizon and investment goals.
The first step in constructing a portfolio is to determine your risk profile.
Based on factors such as age, income level, investment horizon and investment goals, one can fall into any of the three(3) main risk categories; conservative, balanced and aggressive.
The simplest criteria to determine risk tolerance is age.
If you are young and starting your carrier, you are likely to fall in the aggressive spectrum, the older you are and the more you approach retirement, you move towards the conservative spectrum.
In order to know precisely where you fall on the risk ladder, you need to take a risk tolerance questionnaire.
If you qualify as an aggressive investor, majority of your asset in your portfolio can be invested in equities.
A small portion of total asset in the portfolio should be invested in fixed income securities as well as mutual funds to provide liquidity.
Investing all your portfolio in equities is seen as risky.
In order to manage the risk, investing is mutual funds with equities exposure will manage the risk associated with exposure of a large proportion of the investment portfolio to few equities.
Investors with about 10 years to retirement will be categorised as balanced investors.
The primary objective of balanced investors in steady growth.
Any downturn in the portfolio may affect retirement plans completely.
A portfolio with a small allocations to equities is ideal for the balanced investor.
The larger portion of the portfolio should be invested in bonds and mutual funds to reduce fluctuation in portfolio value and returns.