Securities Portfolio
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What is a Securities Portfolio?
A securities portfolio consists of a variety of securities. There are numerous types of securities, including shares, bonds (fixed-interest securities), shares in funds, and structured products. It is possible to add a wide range of assets to a securities portfolio. Real estate is another example. It is generally possible to self-manage a securities portfolio. As the optimal allocation of securities can be rather complex, it is often advisable to hire an independent wealth manager to manage the portfolio.
Portfolio Management
Among the
advantages of a securities portfolio is the possibility of reducing risk through diversification. By
choosing securities from different industries, for instance, the risk is spread. It is common for different industries to be exposed to different risks. There is no universal impact of the Corona crisis on all industries, for example. Among those that have benefited from the pandemic are food retailers, online retailers, delivery services, logistics companies, pharmaceutical companies, and medical technology companies. There has been a gain in the value of securities from these industries, while a loss has been experienced by securities from other industries, such as aviation, tourism, or events. When a
securities portfolio is balanced, the gains from the currently strong industries can be used to offset the losses from the currently weak ones. As a result,
diversification is designed to reduce the risk associated with individual securities or financial products while maintaining a constant return or to maximize return while maintaining the same risk. The objective is to achieve this by investing in different segments, each of which will respond differently to a similar event. It is possible to diversify by investing in different asset classes (stocks, real estate, gold, bonds, etc.), in different regions and countries, or by buying and selling securities over time. All portfolios should incorporate some degree of diversification, reflecting risk tolerance, return objectives, and time horizons, as well as other relevant aspects such as tax situations, liquidity requirements, legal situations, etc.
Investor's Risk Profile and Securities Portfolio Types
The types of securities portfolios are numerous. For instance, a hybrid securities portfolio is diversified across various asset classes. An investment portfolio may be strategic, in which financial assets are purchased with the intention of holding them for a long period of time, or tactical, in which assets are actively purchased and sold with the intention of making short-term gains.
In a figurative sense, a securities portfolio can be thought of as a cake with different-sized pieces. The pieces represent different asset classes. There is a wide range of securities portfolios available, depending on the investor's risk tolerance. Here are three examples of portfolios based on the investor's risk type.
Examples
Safety-oriented
Portfolio
Balanced
Portfolio
Growth-oriented
Portfolio
An investor who is unwilling to take a lot of fluctuation risk, for example, could invest in a portfolio consisting primarily of fixed-income securities (e.g., bonds) and a smaller proportion of equities, real estate, and commodities. Consequently, the risk/return profile of this investment is low. The security-oriented portfolio is an example of this type of portfolio. In addition, despite a low level of risk tolerance, equities can be increased through the selection of defensive, equity-oriented securities. It is possible to accomplish this goal by investing in consumer staples companies. There is generally little risk associated with these sectors since they are less susceptible to crises than other sectors. The price fluctuations of these stocks are usually lower in both good and bad economic times.
On the other hand, a balanced investor may place a greater emphasis on equities (or even real estate and commodities). The result is an increase in the fluctuation risk and, therefore, also in the potential return. The balanced portfolio pie chart provides an example.
Growth-oriented investors are willing to take on fluctuation risks in exchange for higher returns. Due to the high proportion of equities in the growth-oriented portfolio, this portfolio is more susceptible to fluctuations in value. Potential returns are positively affected by this factor. In spite of this, there are also fluctuations that can be positive (gains) as well as negative (losses).
To achieve high returns, return-oriented and equity-oriented securities portfolios have a greater fluctuation risk. However, portfolio value fluctuations can also be attributed to other factors. For example, return-oriented investors may look for companies in an early growth phase or stocks that are rumored to be targets of takeovers. This category also includes companies engaged in the development of breakthrough products in the technology and healthcare sectors.
When constructing a portfolio, investors should consider how long they wish to, or are able to, invest. To protect portfolio returns until the end of a short investment horizon, investors should generally prefer a conservative asset allocation.
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