Investing Portfolio Types and Portfolio Diversification
The financial goals, investing skills and risk-tolerances are different among people. That is why everyone needs a personalized investment portfolio that addresses their needs, skills and resources. Ebele Kemery
says that based on the diversification and investment instruments, a portfolio can be grouped in to one of the five major portfolio types.
1. Defensive Portfolio: The diversification includes investing a majority of the money in low-risk investments. The investors look for long-term price accumulations rather than for quick returns. The common instruments include stock of blue-chip and growing companies, treasury deposits and bonds, commodities, precious metals, etc. Instruments with high-volatility and low-liquidity are generally avoided. The strategy requires good initial research, but less real-time management. Although the returns can be lower, the investors can avoid huge losses.
2. Aggressive Portfolio: This includes investing a major part of money in high-return, but high-risk investment products. Generally investors look for short-term profiting opportunities. The major investing options include stocks of all kinds, Forex currencies, funds and bonds, commodities, futures, indexes, real-estate, etc. The strategy requires an active real-time portfolio management, good money management and risk management skills. Also, the investors require good technical and fundamental analysis skills, software support and related trading infrastructure. Aggressive portfolio management can offer better returns, but there is also high risk of losses.
3. Income Portfolio: As the name suggest, the portfolio management involves investing in products that offer constant returns. Most of these returns can be fixed too. These returns usually involve interest on money investments, returns from bonds and funds, dividend from stocks and shares, or price appreciation on precious metals or commodities. The strategy requires good initial screening and involves lowest downside risk of all portfolio types mentioned here. The returns can also be lowest, but constant.
4. Speculative Portfolio: This is the portfolio type which requires most active management and involves investing in high-volatile high-risk and high-return financial products. This also includes investing with borrowed money and going against existing trends. The common investing instruments include stocks of new and small companies, IPOs, options, futures, currency pairs and on emerging markets. Investors should be extremely dedicated with good investment skills and resources. The returns can be very high, but there is no guarantee.
5. Hybrid Portfolio: These are portfolios with very good diversification to include more than one type of financial instrument. Based on the diversification the portfolio can be slightly more aggressive or defensive. Investors can also choose to include different return investments and to close existing investments according to their returns, changing economy and investment skills.