What Is Portfolio In Share Market: Around investor circles, people often ask each other, “How does your portfolio look today?” and “Is your portfolio in red or green?”. To an outsider, it does make one wonder exactly what the term portfolio means and why it is used among investors so frequently.
This blog post will give you a brief understanding of what a portfolio in the share market is. So scroll down and find out!
What Is Portfolio In Share Market?
Put simply, a portfolio is a collection of an investor’s total assets. It could include financial assets such as stocks and bonds as well as other valuables such as gold and real estate.
The combined net worth of an individual tied up into these assets tells us their net worth.
Also known as a financial portfolio, it is the basket of investments that you as an investor own. Let’s assume that you own stocks, bonds, and cash, which are all a part of your total investment.
The complete collection of these assets is called a portfolio. By definition, a portfolio is a collection of securities and investments that an investor possesses.
These could be stocks, bonds, cash, cash equivalents, and commodities. Now that you’ve read about what is portfolio in share market, let’s understand it with an example, of how it works!
What Is A Portfolio In Simple Words?
Let’s understand a portfolio through a simple representation. Imagine one entire portfolio as a complete cake. Each slice of the cake represents an asset, which ranges from stocks to cash.
In the representation shown below, the sample portfolio shows that of the total investment, 60% has been invested in the equity segment, 20% in bonds, and 20% is held in the form of cash.
Components of a portfolio
The major components of a financial portfolio are –
Stocks represent the holdings in publicly listed companies, irrespective of the size of the companies. The percentage of stocks in a portfolio depends on the number of shares held and the market price of each share.
Shareholders are eligible for dividends from these stocks as well. Based on the companies held, they carry a moderate to a high amount of risk.
Investors earn revenue from stocks either through dividends or capital gains when the share price climbs higher than the purchase price of the investor.
Bonds are fixed-income securities that carry a relatively lower risk than stocks are pay out a fixed interest rate year on year, till the maturity of the bond. Upon maturity, investors receive their initial investment or principal, along with interest.
- Alternative Investments
Alternative investments are options beyond stocks and bonds that carry a varied amount of risk. They can be gold, real estate, commodities, and cryptocurrency.
Types Of Portfolio
An interesting aspect of portfolios is that you can create your own portfolio, as per your investment goals, time duration, and risk tolerance.
The types of portfolios are listed below –
- Income Portfolio
An income-based portfolio is focused on one important feature –
To generate regular income from your investments. A perfect example of this is investing in dividend-based stocks so that your stocks regularly pay you a return on your holdings.
- Value Portfolio
Here, the gain lies in researching and owning stocks of companies that are undervalued or trading below their fair market value.
When such stocks correct themselves and rise to their fair value, investors gain substantially.
- Growth Portfolio
Having a growth portfolio involves investing in companies that are in their “growth” phase, meaning that the company is rapidly expanding and its business is growing quite well. However, this kind of portfolio carries a high risk-reward ratio so tread lightly.
- Defensive Portfolio
Markets are volatile and so are world economies. In times of high inflation and retrogressive growth, there are only a handful of companies that can manage to stay afloat. A defensive portfolio is prepared for that purpose alone – to defend your investments against bad market downturns.
Managing A Portfolio
As mentioned above, investors can manage their own portfolios. This is a skill that is acquired through practice and studying the fundamentals of a company over time.
Generally, a financial portfolio is a combination of securities such as stocks and bonds but it can also include other investments such as gold and real estate.
Why Portfolio Management Is Important?
If you plan it right, portfolio management can help you prepare for any financial hurdles you may face in the future, as well as achieve your goals quicker. The bulletin points below state why portfolio management is important and why you should manage your finances –
- It mitigates risk from chance investing
- Improves the likelihood of generating profits
- Develop strategies that work in different market conditions
- Quicker rebalancing based on the financial condition.
A good portfolio depends on regular rebalancing and a mix of securities that are fundamentally strong. It varies from person to person due to differences in goals, timeline, and tolerance for risk.
Also Read: What are Portfolio Rebalancing Strategies? Different ways to Rebalance your Portfolio!
We have reached the end of this informative blog on ‘’What Is Portfolio In Share Market?’’ To learn more about the world of investing, visit our blog section and if you’re interested in going the extra mile, then sign up for our courses! Happy Investing!
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