example of portfolio investment
The investment portfolio is a collection of several investment projects, managed as a single whole. The portfolio may also include real assets, and financial assets, and intangible property, and not the financial means.
The most common is an investment in the securities.
The task of the portfolio investment - receipt of expected yield at minimum risk.
At formation of the investment portfolio investor should:
Choose the adequate securities, that is such, which would given the maximum possible yield and minimum allowable risk;
It is important to determine in the securities of, any of the issuers should invest money;
To diversify the investment portfolio. Investor would be expedient to invest money in different securities, and not one of them. This is done in order to reduce the risk of investments. But diversification must be reasonable and moderate.
The purpose of formation of an investment portfolio is to preserve and increase the capital.
Classification of investment portfolios
The investment portfolios are of various kinds. Criteria for classification can serve as a source of income and the degree of risk.
The portfolios of growth are formed from securities, foreign exchange value of which is growing. The objective of this type of portfolio - increase in the value of the portfolio.
Portfolio of high income includes high-yield securities and focused on achieving high current income - interest on bonds and dividends on the shares.
The portfolio of fixed income - portfolio, which consists of highly reliable securities and brings the average income of a minimum level of risk.
The combined portfolio is formed in avoiding possible losses on the stock market, as of falling of the market value, and low dividend and interest payments.
Management of the investment portfolio
Under the management of the investment portfolio is the collection of the methods, which provide:
The preservation of the initially invested funds;
The achievement of the highest possible level of profitability;
Reduction of the level of risk.
There are generally two ways to control: active and passive management.
Active management is a management, which is connected with the constant monitoring of the market of securities, the acquisition of the most effective securities, and as fast as possible deliverance from low-income securities. This view implies a fairly rapid change in the composition of the investment portfolio.
Passive management is the management of the investment portfolio, which leads to the formation of a diversified portfolio and its preservation in a long time.
The formation of the yield and risk of an investment portfolio
The yield of the portfolio. , The expected return of the portfolio refers to the weighted average of the expected yield of the securities included in a portfolio. The «weight» of each security is determined by the relative amounts of money aimed investor for the purchase of that security.
Risk of the portfolio is due not only to the individual risk of each individual securities portfolio, but also the fact that there is a risk of the impact of changes observed annual values of yield of one share on change of yield of other shares, included in the investment portfolio.
