What is a portfolio?？

A portfolio is your blueprint for investing - details of all the stocks, bonds and other financial assets you own。Ideally, your portfolio should enable you to achieve the best return with risk tolerance in mind。

The portfolio of assets in your portfolio should depend in part on your financial needs and how long you want to own each asset。

Portfolios can take many forms, and sometimes they focus on just one asset class, such as stocks or bonds。However, there are suggestions and best practice examples for what to include in your portfolio。This usually depends on your income, when you plan to retire, lifestyle, and risk tolerance.。In general, items such as houses or cars will not be included when discussing the portfolio。

What is the purpose of owning a portfolio?？

Portfolio provides a framework for your funds, designed to help you monitor and manage your investments。

If you want, a portfolio can help you diversify your assets into stocks, bonds, and other uses。Monitoring your portfolio by each asset class can help you determine if the strategy is right for you。Over time, you may decide to buy more of certain assets, or sell other assets。

Sometimes, people use goal allocation to plan various goals。For example, you might work with a financial planner to determine the percentage of assets to invest in stocks and bonds。

Considerations for establishing a portfolio

Building a basic portfolio is as simple as buying a few stocks, and many people start from this。However, research shows that building a more purposeful portfolio (which helps optimize returns while effectively managing risk) means including a variety of assets.。Your portfolio is called your asset allocation。

There are three main ways to build an actual portfolio.

1. Self-selection of personal assets
   Investing in actively managed mutual funds or exchange-traded funds
   Hire a financial advisor to choose your investment

As mentioned earlier, you can choose a group of stocks independently, or a combination of stocks and bonds。Let's say you invest on your own and build your own portfolio。

Alternatively, you can invest in actively managed mutual funds or exchange-traded funds (both of which can invest in a variety of assets)。

Alternatively, you can hire a financial advisor (someone who advises you on investment and money management) to build a portfolio on your behalf。

The two keys to building a portfolio are.

1. Understand your risk tolerance
   Understand the time frame in which you hold each asset

These parameters can help you determine the type of investments in your portfolio。Usually, they work together。For example, investors with longer maturities (such as those who are more years away from retirement) typically have a higher risk tolerance than short-term investors who want to sell assets faster。

Activist investors with high risk and longer long-term investment horizons tend to buy assets such as stocks and real estate because these stocks typically offer more upside, although they are also typically more volatile and risky.。

Low-risk and short-term conservative investors are more risk-averse and often prioritize portfolios with financial stability and predictable returns。Typically, conservative investors will put more money into income-oriented investments, such as bonds or dividend-paying stocks of larger, more mature companies。

What is a specific risk？What is Portfolio Risk?？

Simply put, risk is the likelihood that you will lose money。Depending on your loss aversion, you may determine your "risk tolerance"。Depending on your risk tolerance, you can choose your asset allocation to be able to withstand the ups and downs of the market。

Individual stocks have a "specific risk," which is the likelihood of a negative event affecting a company (e.g., CEO departure, major supplier bankruptcy, or product recall)。Individual assets, such as bonds, also have specific risks。

But part of your portfolio, or even the entire portfolio, can fall at the same time.。(This may happen during a recession, or if you concentrate your investments in a single industry。) The risk associated with the entire portfolio depends in part on your asset allocation and is called "portfolio risk"。

A concentrated portfolio may be more volatile than a diversified portfolio and is at risk of falling more sharply。This is true for almost all assets - for example, if you invest primarily in real estate and the real estate market generally falls, your portfolio may also fall more。This type of firm or industry-specific risk can be reduced through diversification。

Your risk appetite may also depend on the time before you want to sell the asset。If you need or want to get your money as quickly as possible, it's best to invest in more conservative assets。But in general, if the time frame is longer, you may take a more aggressive approach because you may have more time to make up for any losses or recent fluctuations。

On a closer look, individuals looking to buy a home soon may pursue conservative investments, limiting their portfolios to less volatile assets。But younger investors saving for retirement may opt for riskier assets。While stocks tend to offer more upside than bonds over the long term, they also typically experience higher volatility, so you must always monitor gains and losses。In short, investment choices need to be carefully weighed。

What is Portfolio Rebalancing?？

Over time, the price of some assets will rise while the price of others will fall。As a result, your asset allocation may change。For example, if stocks perform well relative to other assets, your portfolio may be more concentrated in stocks (and less concentrated in other asset classes)。

Rebalancing means modifying or adjusting your portfolio back to the target allocation。Depending on your strategy, you can sell in the overweight area and buy in the underweight area。Rebalancing can help you build and maintain a portfolio that fits your risk tolerance。

By the same token, if stocks have underperformed recently, their share of your portfolio may be smaller than you think。In this case, you may buy more shares to get back to your target asset allocation。

What is a diversified portfolio?？

A diversified portfolio can help you manage risk by diversifying your investments across different assets。In general, diversification helps reduce volatility and smooth returns。Putting all your money into a single asset class can expose your portfolio to unacceptable levels of risk。For example, if you only hold stocks and the stock market falls, your portfolio may perform worse than if you hold both stocks and bonds。

That's because most bonds don't tend to fall as sharply as stocks - different factors usually drive each asset class - and bonds usually provide a predictable source of income.。Through a diversified portfolio, even if certain assets fall, in some cases, your other assets may continue to be unaffected, thereby minimizing your losses。This is not always the case, because under special circumstances, you may also suffer a total loss。

The trick is to find assets that react out of sync。That is, if an asset underperforms, you may need an asset to offset it。Diversification is a bit like planning a weekend for an unpredictable event: going to the beach if it's sunny; but possibly buying a board game in case it rains and having to stay home。

Diversification does not prevent losses, but it can help limit them。Building a diversified portfolio typically involves a combination of stocks, bonds and cash。Adding real estate, gold, currencies and other assets can enhance a diversified portfolio。

Even if you decide to invest only in stocks, you can achieve a degree of diversification by holding multiple stocks。In the 1960s, stock market researchers found that just 10 stocks could help diversify。And in this day and age, more stocks are needed to build a truly diversified portfolio.。

In addition to diversifying across asset classes, investors may also want to diversify across market segments, such as the automotive industry and consumer staples.。In addition, investors may want to include a variety of companies in their portfolios to achieve a balance between growth companies and old-school dividend companies。

What a portfolio might contain？

No one asset allocation is right for everyone。What is included in an individual's portfolio varies from person to person, depending on their circumstances and goals。However, a typical investment by a conservative investor may include a larger proportion of cash and bonds, as well as a smaller proportion of large, mature companies.。

More aggressive investors sometimes invest in small-cap stocks, growth stocks, or high-yield bonds; others may seek out real estate and alternative investments such as commodities and foreign currencies。In addition to common investment risks, unique risks that require more research or professional help are added。

Note: Diversification does not ensure profitability or non-loss。