Portfolios are a group of assets that an individual has in order to achieve their financial goals. There are many types of financial assets you can include in your portfolio today, including equity shares, mutual funds and debt funds, as well as property, derivatives, and gold. Diversified portfolios are great for reducing risk and generating higher returns.
Let's first look at the various portfolio types that are available to investors. Before choosing the right type of portfolio for you, consider your financial goals, risk appetite and investment horizon.
Here's a list of the most popular portfolio types. You should keep in mind that not all portfolio types will be suitable for your financial needs. To find the perfect combination for you, you may need to mix and match different types of portfolio investments.
An aggressive portfolio, as it is often called, is aggressive because it seeks higher returns and takes on higher risks in order to achieve these goals. This portfolio generally includes high beta stocks. These stocks have higher volatility than the overall market. For example, take a stock that has a beta greater than 1.5 or 2.0. These shares can move almost twice as fast as the market shifts, meaning you could double or even triple your profits.
Aggressive investors aren't always interested in household names in stocks and financial assets. Investors often favor companies in the early stages of growth and with unique value propositions that can generate extraordinary returns for the associated risks.
It is a smart idea to focus on sectors such as the technology sector if you are looking to create this type of portfolio. They offer huge upswing opportunities. It is best to use your logic here, however. You should aim for maximum returns but make sure your losses aren't greater than your profits.
A defensive portfolio does not include stocks with high beta values. These shares are generally unaffected by market movements. Because they are low-risk, these stocks can be considered safe investments. They do not offer high returns during upswings or crash excessively during lows in the business cycle. Companies that produce survival products or essential daily items like food and utilities will be able to weather any economic downturn as long as there is strong customer demand.
It's easy to narrow down the selection of assets for a portfolio that is defensive. Consider the products you absolutely need throughout the day, and then invest in those companies. For risk-averse investors, a defensive portfolio is a safe investment.
An income portfolio is focused on the recurring dividends and other benefits that shareholders receive. It shares many similarities with a defensive portfolio but it is distinguished by its focus on stocks that have higher yields.
The best example is real estate. You get a larger share of the profits and favourable tax returns. You can reap all the benefits of investing your capital in a boom industry without having to worry about owning property. Real estate isn’t as resilient in times of economic downturns.
This type of portfolio should be built by looking for stocks that aren't so common but still pay good dividends. Other stable industries include FMCG, utilities and other commodities. This is a good option if you want your portfolio to be an active supplement to your monthly income or to provide support during retirement.
A high-risk appetite is required for speculative portfolios. It's often compared with gambling. The portfolio isn't just aggressive, but also bets on the future success of a product or service. The speculative portfolio category includes initial public offerings (IPOs) and takeover targets. This category also includes technology and health care companies that are involved in cutting-edge research and breakthrough discoveries.
Investors may not have the same high-risk appetite. Financial advisors recommend that speculative assets be limited to 10 percent. First-time investors should be cautious when making a decision. To find companies that can deliver incredible returns, it takes extensive research and experience.
This type of portfolio, as the name implies, allows you to combine asset types with different fundamentals to maximize growth and dividend-yielding investments. Such a portfolio provides maximum flexibility. A hybrid portfolio is one that combines high-yield equity returns with fixed income instruments like bonds and debt funds.
There are many types of portfolios. Investors must be careful when selecting the assets that will best suit their investment goals. To maximize your returns, take the time to study each asset type's fundamentals.