Who owns portfolio

Since it is difficult to know which subset of an asset class or sector is likely to outperform another, diversification seeks to capture the returns of all of the sectors over time while reducing volatility at any given time. Basically, it involves spreading risk and reward across various classes of securities, sectors of the economy, and geographical regions. Portfolio Management. Portfolio Construction. Fund Trading. Your Privacy Rights. To change or withdraw your consent choices for Investopedia.

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Popular Courses. Investing Portfolio Management. What Is Portfolio Management? Key Takeaways Portfolio management involves building and overseeing a selection of investments that will meet the long-term financial goals and risk tolerance of an investor. Active portfolio management requires strategically buying and selling stocks and other assets in an effort to beat the broader market.

Passive portfolio management seeks to match the returns of the market by mimicking the makeup of a particular index or indexes. What Is Asset Allocation? What Is Diversification? Compare Accounts. His work has appeared on TheStreet.

With two decades of business and finance journalism experience, Ben has covered breaking market news, written on equity markets for Investopedia, and edited personal finance content for Bankrate and LendingTree. Select Region. United States. United Kingdom. Brian O'Connell, Benjamin Curry. Contributor, Editor. Editorial Note: Forbes Advisor may earn a commission on sales made from partner links on this page, but that doesn't affect our editors' opinions or evaluations.

Featured Partners. Annual advisory fee None. Annual advisory fee 0. Was this article helpful? Share your feedback. Send feedback to the editorial team. Rate this Article. Thank You for your feedback! Something went wrong. One of the key concepts in portfolio management is the wisdom of diversification —which simply means not to put all your eggs in one basket. Diversification tries to reduce risk by allocating investments among various financial instruments, industries, and other categories.

It aims to maximize returns by investing in different areas that would each react differently to the same event. There are many ways to diversify. How you choose to do it is up to you.

Your goals for the future, your appetite for risk, and your personality are all factors in deciding how to build your portfolio. Regardless of your portfolio's asset mix, all portfolios should contain some degree of diversification, and reflect the investor's tolerance for risk , return objectives, time horizon, and other pertinent constraints, including tax position, liquidity needs, legal situations, and unique circumstances. Investors aim to construct a well-diversified portfolio to achieve a risk-return portfolio allocation that is appropriate for their level of risk tolerance.

Although stocks, bonds, and cash are generally viewed as a portfolio's core building blocks, you may grow a portfolio with many different types of assets—including real estate, gold stocks , various types of bonds, paintings, and other art collectibles. The sample portfolio allocation pictured above is for an investor with a low tolerance for risk.

In general, a conservative strategy tries to protect a portfolio's value by investing in lower-risk securities. Most investment professionals agree that, though it does not guarantee against loss, diversification is a key component for reaching long-range financial goals while minimizing risk. There can be as many different types of portfolios and portfolio strategies as there are investors and money managers.

You also may choose to have multiple portfolios, whose contents could reflect a different strategy or investment scenario, structured for a different need. The hybrid portfolio approach diversifies across asset classes.

Building a hybrid portfolio requires taking positions in stocks as well as bonds, commodities, real estate, and even art.

Generally, a hybrid portfolio entails relatively fixed proportions of stocks, bonds, and alternative investments. This is beneficial, because historically, stocks, bonds, and alternatives have exhibited less than perfect correlations with one another.

When you use a portfolio for investment purposes, you expect that the stock, bond, or another financial asset will earn a return or grow in value over time, or both. A portfolio investment may be either strategic —where you buy financial assets with the intention of holding onto those assets for a long time; or tactical —where you actively buy and sell the asset hoping to achieve short-term gains.

The underlying assets in an aggressive portfolio generally would assume great risks in search of great returns. Aggressive investors seek out companies that are in the early stages of their growth and have a unique value proposition. Most of them are not yet common household names. A portfolio that is defensive would tend to focus on consumer staples that are impervious to downturns.

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