The most important information about investment portfolios

What are investment portfolios?

Investment Portfolios can be defined as holding stocks, bonds, and other financial assets that the people who contribute to them are expected to achieve a profitable return, from which they expect an appropriate growth in the value of these properties over time. These investment portfolios contain a group of financial assets that are divided into categories, Where investors must ensure the availability of a good mix of assets in the portfolio in which they wish to invest their money to maintain the required balance, which helps to increase capital growth with relatively less risk, and the concept of investment portfolio management has emerged to facilitate the process of controlling investment tools, for example, it is not desirable Putting all the eggs you own in one basket, which means that you do not have to risk investing all your money in one portfolio or destination in order to avoid losing.

The creation of investment portfolios

The emergence of the idea of ​​investment portfolios dates back to the late sixties of the last century, when these portfolios appeared with the aim of achieving the financial goal of individuals and making profits in the long term, until it became impossible to imagine the economy of all countries devoid of investment portfolios and their applications as they are currently, before the establishment of investment portfolios Specifically in the thirties of the last century, people were evaluating the concept of investment as betting on winning shares so that an amount of money is placed on shares that are expected to achieve the best prices and return to them with the largest possible return of profits, and this method tends to the concept of gambling somewhat, and this was It is difficult to predict and win a bet because the information was not easily entered into the markets at that time using traditional means, and because of that some analysts such as Benjamin Graham came to stress on taking accurate information to make the right investment decisions, and then in the fifties of the same century came Graduate student Harry Markowitz developed modern portfolio theory, which he came up with by researching a topic for his doctoral thesis. [3]

What are the components of investment portfolios?

The investment portfolio includes a group of tangible assets owned by individuals, including real estate, so that the portfolios are not limited to stocks, bonds or cash directly only, and can also include real estate investment funds and exchange-traded funds in addition to guarantees and futures contracts, and accordingly it must consist Investment portfolios consist of a group of the following components that contribute to achieving profits: 

Stocks

The stock refers to a part or share of the company, and shares are the most common component of investment portfolios, and the size of the ownership share depends on the number of shares owned by a person, and shares are an important source of income that helps companies achieve profits, and shares purchased can also be sold at higher prices depending on the company's performance.

Bonds

The investor buys bonds by lending money to the issuer or the owner of these bonds such as; Governments, companies or agencies, these bonds come with a maturity date; This means that there is a specific date for returning the principal amount used to purchase the bonds with interest payment due. Compared to stocks, bonds do not represent the same risk and therefore can return to investors with lower returns.

Alternative Investments

Alternative investments can also be included in investment portfolios, and these investments may include assets that can grow in value and multiply such as gold, oil and real estate, and this type of investment is usually traded on a large scale but less than traditional investments such as stocks and bonds.

What are the types of investment portfolios?

There are many types of investment portfolios available to investors, the selection of which depends on a number of factors, such as defining financial goals and determining the proportion of risk that can be contributed in these portfolios, and one type of portfolio may not meet all your financial needs, which means that you can invest in More than one type and combination of these portfolios to reach the coverage you are looking for for your financial goals and plans, and the following is a statement of the most prominent types of investment portfolios in the following points:

Aggressive Portfolio

The name of the offensive portfolio is evidence that the type of this portfolio is very strong, and it was named so because it aims to achieve more profits always while bearing a large amount of risk, so that these portfolios contain stocks that are characterized by continuous volatility in the market, they move to the top or It decreases by twice as much based on the change that occurs in the market, which means either doubling profits or losing, and investors in these portfolios prefer to deal with companies that are in the stage of growth and development, especially those in the technology and communications sector.

Defensive Portfolio

The defensive portfolio indicates from its name that it is the opposite of the offensive or aggressive portfolio, so that it does not consist of shares of high value, and it is not affected by changes or movements that occur in the market, and these portfolios are very safe for investment; They involve minimal risk, and what is distinguished in these portfolios is that the loss or profit does not occur at high levels, which makes the loss, and if it occurs, is not significantly harmful to the performance and success of companies or investors even in times of economic downturn. Such investments are made in companies Or stocks of services and products that people consume on a daily basis.

Income Portfolio

Income portfolios are based on achieving profits through dividends and other recurring benefits that investors get. This type of portfolio is similar to defensive portfolios with a number of common denominators, but they differ in the stocks in which they invest, so that the income portfolio takes risks by investing in stocks. With relatively high returns, such as real estate, so that you can enjoy getting all the advantages of investing in such prosperous sectors without having to own real estate.

Speculative Portfolio

This type of portfolio refers to investments that require a high level of risk that is often compared to gambling, as these portfolios are not only aggressive but also bet on the success of a product or service in the future, and this portfolio is suitable for investors who aim to acquire, this Financial advisors recommend setting a limit on speculation of no more than 10%.

Hybrid Portfolio

The name of the portfolio refers to the principle of its work, as this type of portfolio is based on the integration of different types of assets in different ways to make money better, and this type of portfolio provides the maximum possible flexibility. It is rather high, as are fixed income instruments such as bonds, debt funds, etc.

What are the types of investments in investment portfolios?

Investment in investment portfolios is divided into two main types, and they are, as will be explained: 

Strategic investment: It is based on the purchase of financial assets because there is an opportunity for them to grow and to obtain a return from them in the long term, which means keeping them for a long time.

Tactical investment: It represents the activity of buying and selling in the hope of making profits through the portfolio in the short term.

How to start your investment portfolio

Some investment portfolios are a form of long-term strategic investment in the funds owned by investors, and accordingly, investors think carefully before starting to identify and arrange ideas and apply them on the ground, and most of them conduct a comprehensive study of the types of portfolios and the nature of the market, etc. Take the correct steps precisely to start with these portfolios, and this can be clarified through the following: 

First: Assess the current situation

Planning for the future requires understanding the current situation of investors and deciding where they want to be. A comprehensive assessment of current assets, liabilities, cash flows, etc. is required, and the gap between the set goals and the current situation must be measured; To determine the desired business development path.

Second: Defining investment objectives

Determining the objectives depends on the risks and the expected return to be obtained from this investment, where the investor determines the amount of risk he wishes to face and the extent of fluctuations that he can bear. Track portfolio performance.

Third: Asset Allocation

Risk and expected return profiles are used to allocate assets, so that the investor can develop his own asset allocation strategies in which he wishes to invest; So that it can distribute assets in an optimal way that achieves optimal diversification to target expected returns, and this can be done by specifying percentages for different asset classes, including bonds, stocks and alternative investments.

Fourth: Determine your investment options

Investment options are determined based on the asset allocation strategies you have undertaken. The type of investment chosen depends on the investor’s preference for the type of active or passive management. Actively managed portfolios include both individual stocks and bonds if there are enough assets to achieve diversification, while portfolios that are actively managed include individual stocks and bonds if there are enough assets to achieve diversification. It is managed passively in partnership with selected index funds of different asset classes, as well as economic sectors.

Fifth: Monitoring, measuring and rebalancing

The management stage comes after the planning stage of the portfolio, and this includes measuring the performance of the portfolio at regular intervals, and monitoring the investments, and the investor’s position and objectives that he set are reviewed to ensure whether they need to be changed in case a gap is found or the results do not match what is planned, It is also possible to rebalance the portfolio, sell investments, and buy stocks that provide greater potential for growth and planned profit.