What is a portfolio

An investment portfolio is a basket of assets that can include stocks, bonds, financial derivatives, precious metals, cash, and other types of assets.

As we often hear the saying, Don’t put all your eggs in one basket. The same goes for not putting all your money into the same asset.

Put your eggs in different baskets. Even if one basket of eggs is broken, the other will be safe. Similarly, the core purpose of building a core portfolio is to diversify risks. A single asset may produce relatively large fluctuations, but if you hold an investment portfolio consisting of multiple types of assets, the fluctuations of various assets will offset each other, which can reduce the overall risk of the investment portfolio.

Three major characteristics of the portfolio

First

Diversification. Only by purchasing different types of assets, reducing the weight of a single asset, and diversifying investments can the risk of the investment portfolio be reduced.

Second

Weak correlation. The assets in the investment portfolio should have a relatively poor correlation. For example, for stocks, if you buy Moutai and Wuliangye in the liquor industry at the same time, the rise and fall of these two stocks are highly correlated, and the meaning of risk diversification is lost.

Third

Personalization. The composition of assets in the investment portfolio needs to vary from person to person. If you have a high risk appetite, you can allocate more equity assets, such as stocks. If you have a low-risk appetite and are extremely averse to losses, you can allocate more low-risk assets, such as bonds, or even keep cash.

How to build a portfolio

How do I build an investment portfolio? Here is a relatively simple method, using an interesting little formula: 100-age, the number obtained is the proportion of funds invested in equity assets such as stocks or stock funds.

The logic of this formula is that the younger you are, the stronger your earning ability is, the higher your risk tolerance is, and you can allocate more high-yield, high-risk assets.

 Example

If you are 30 years old now, you can buy 70% of stocks or stock funds, and the remaining 30% is allocated to relatively low-risk assets. Such as bonds, money market funds, and gold.

At the same time, within a certain type of asset, it is also necessary to diversify the allocation.

Example

For stock assets, you can spread the risk by buying different stocks. Preferably stocks from different industries and types.