What is a ‘Portfolio’
A portfolio is a grouping of financial assets such as stocks, bonds and cash equivalents, as well as their funds counterparts, including mutual, exchange-traded and closed funds. Portfolios are held directly by investors and/or managed by financial professionals. Prudence suggests that investors should construct an investment portfolio in accordance with risk tolerance and investing.
BREAKING DOWN ‘Portfolio’
An investment portfolio can be thought of as a pie that is divided into pieces of varying sizes, representing a variety of asset classes and/or types of investments to accomplish an appropriate risk-return portfolio allocation. Many different types of securities can be used to build a diversified portfolio, but stocks, bonds and cash are generally considered a portfolio’s core building blocks. Other potential asset classes include, but aren’t limited to, real estate, gold and currency.
Impact of Risk Tolerance on Portfolio Allocations
While a financial advisor can develop a generic portfolio model for an individual, an investor’s risk tolerance should have a significant impact on what a portfolio looks like.