Financial Dictionary - Portfolio
A portfolio is a set of financial assets and investments that make up an investment fund, a person or an entity's assets.
This portfolio is also called securities portfolio and it can be made up of a combination of variable income and fixed income financial instruments. Depending on the instruments it includes, its profitability will vary.
If the portfolio includes fixed income instruments, there will be a fixed return but a lower profitability than in the case of equities, which will offer higher returns, but does not ensure the initial return.
What is the investor's profile?
When preparing the composition of the portfolio, it is essential to define the investor profile. To do this, we must take into account the risk they are willing to assume, since this will be the basis for creating the portfolio.
Three investor profiles are generally established:
- Conservative: it encompasses investors who seek protection and stability for their money and are, therefore, more suited to fixed income products and deposits.
- Moderate: it is the most balanced profile. They seek stability, but taking advantage of their savings. They are willing to take on a certain risk in the medium term.
- Aggressive: this profile is willing to take more risks in exchange for the possibility of obtaining greater benefits.
What are the investment goals?
Once the investor's profile has been defined, the investment goals must be defined. When defining the investment goal, a specific profitability or at least a specific range of benefits should be established.
Achieving balance is a basic premise when putting together any investment portfolio so that it is able to cover the risks of more aggressive assets with other more conservative ones. Investment diversification is the most effective way to achieve it.
Another thing to take into account when forming a portfolio is the taxation of each product and the fees that the entities will charge for each of them.