In simple terms, a financial portfolio is a collection of investments held by a person or a group of investors.
Portfolios can comprise a wide range of assets, including stocks and bonds, artwork and real estate, commodities such as gold and oil, and various types of currency, including FIAT and cryptocurrency.
There are different ways of starting a financial portfolio. If you are currently paying into a retirement plan with your employer, typically known as a 401(k), then you already have one, even if you didn’t realize it.
How To Start A Financial Portfolio
Some investors would rather have a financial advisor manage their financial portfolios.
This is a sensible option as it means you have a team of experts working to ensure you are investing correctly.
This comes at a price, and a good financial advisor can set you back a couple of percentage points on your total investment regardless of whether you make a profit.
Like many people today, you may prefer to use an investment or trading platform to manage your financial portfolio.
Using an investment platform allows you to manage your assets and investments with complete control over what you are investing in.
It also allows you to choose the level of risk you want to take to reach your financial goals.
Investment platforms enable users to buy and sell their assets on a live global marketplace while keeping track of their funds across various asset classes.
Depending on several factors, including your age or financial situation, different types of financial portfolios may be more suitable for you.
That is why it is good to understand the types of financial portfolios available today.
As a younger investor, you may opt for a more aggressive portfolio focusing on stocks and riskier asset classes like cryptocurrency.
These are known as Growth portfolios and provide the highest growth potential; however, that growth is relative to the risk of losing your investment altogether.
If you are nearing retirement, you may prefer a lower-risk strategy, such as investing in bonds, that ensures a steady income in your twilight years.
If, however, you are somewhere in between, there are many hybrid options for investors to consider.
Managing your financial portfolio means you can split your assets, which is known as diversification.
By having a diverse range of assets in your portfolio, you can take advantage of specific markets’ higher fluctuations while not having all your eggs in one basket and having something to fall back on.
Types Of Investment
If you plan on managing your financial portfolio, it is essential to understand the different types of investment available to you, as each comes with an extra level of risk and reward. Here is a summary of some popular ones:
Owning a stock means owning a piece of that particular company. Also known as entities or shares, your share in the company is relevant to how many stocks you hold.
If the company is perceived to be doing well based on several factors, the stock price will increase, and in turn, so will your investment.
You can sell your shares anytime, and the price fluctuates by the minute. This is good for short-term investors but not so good if you want something long-term and stable.
2.) Fixed Income Investments
Also known as bonds, fixed-term investments are more like a loan you lend to a corporation or government entity.
While bonds don’t typically yield as much as stocks, they are far more secure and reliable and include certain features, such as interest paid on loans in the form of dividends.
This is why people tend to invest in bonds when they are getting closer to retirement age and don’t have the time to recover from potential losses on the stock market.
3.) Cash or Cash Alternatives
Cash or alternative cash investments include savings accounts, checking accounts, and certificates of deposits (CDs).
These investments are typically low-yield and low-risk and are suitable for saving money rather than making it. CDs are FDIC insured to the value of $250,000, so even if the bank collapses, this will be safe.
You can buy and sell physical products on an exchange. Common commodities for trading include gold and other precious metals, widely used industrial metals such as aluminum and copper, oil and gas, agricultural produce such as corn and wheat, cattle, and other livestock.
The price of these commodities will fluctuate depending on certain global events. For instance, conflict in certain countries could increase the cost of oil, and extreme weather conditions could affect the price of corn.
The price of gold has also steadily increased over time, making it a reasonably secure investment.
5.) Foreign Currency
You may have heard the term forex before. If not, it is just a short way of saying Foreign exchange.
Trading in foreign currency means you exchange your dollars for another nation’s currency and hold it until you can get a better exchange rate to change it back.
Global and political events can also influence forex trading, which could cause nations’ currencies to gain or lose value.
Forex trading is a fast-growing addition to the usual suspects mentioned above and one you should consider if you want to further diversify your financial portfolio.
Now that you have a better grasp of the types of investment and the types of financial portfolios available, you will be in a better position to decide how you want to diversify your assets.
Whether you want to hand the reigns to a professional or you feel like building your financial portfolio on a trading platform, remember to consider your circumstances and tailor your plans to suit them.
Don’t put all your eggs in one basket and always leave yourself something to fall back on. Follow those rules, and you cannot go far wrong.