Features of an ideal financial portfolio

Nutan Gupta

22 Sep 2017

A financial portfolio is a collection of investments which an investor chooses to invest in to achieve his/her financial goals. It is a combination of assets such as stocks, bonds, and cash and provides much-needed diversification to an investor so that he can lower the risk of loss by way of evenly distributing the risk across various investments.

Every investor is always looking for a financial portfolio that is ideal according to his/her need. The correct mix of investments for you depends entirely on your financial situation and your financial goals. Although, each investment portfolio is different, all financial portfolios have a few features in common:

Diversification:

Investing includes a high risk of losing all of your money; extensive diversification of the portfolio is a must to safeguard you from this potential hazard of losing capital and income. Diversification refers to the process of investing in different asset classes and in the securities of various companies in the attempt of reducing the overall risk of investment and to avoid the poor performance of the portfolio due to incurring a loss in a single security.

Diversification can help an investor manage risk by the distribution of risk factor among the investments. For instance, you have invested Rs 1,00,000 in ABC company and Rs 2,00,000 in XYZ company. You incur a loss of Rs 50,000 in the investment of ABC and a profit of Rs 1,00,000 in the investment of XYZ company. Here, you have managed the risk of losing 50,000 by gaining Rs 1,00,000 in the investment of XYZ company. Had you have only invested in ABC company; you would have incurred a loss of Rs 50,000. Hence, diversification is one of the most important factors in creating an ideal financial portfolio.

Liquid Assets:

A liquid investment is an investment which can be transformed into cash immediately without losing the invested money. Liquid investments help investors meet emergencies. Portfolio comprising of liquid investments allows the investors to accumulate funds by the sale of liquid securities or borrowing by extending them as collateral security. It requires you to invest in high grade and readily saleable investments to ensure their liquidity and collateral value. This will make sure that you can sell your stocks whenever you want and convert them to cash without having to wait for a long time.

Simple and Transparent:

Your financial portfolio should be straightforward. You should understand what each element of your portfolio is, and what it is supposed to do. It should be simple without being complex and shouldn't have additional components. You should be able to quickly review and assess your portfolio's performance from a few account statements that each contains no more than a handful of securities and transactions each year. This simplicity will allow you to monitor your investments without having to give a lot of time to manage your investments.

Tax Efficient:

While planning a financial portfolio, the investor should seriously consider the tax consequences of the investments. An ideal financial portfolio achieves its goals at the lowest cost possible; if your investments are tax efficient, you can maximize the quality of your investment strategy and of the portfolio it produces.

A lot of online websites provide you with the much-needed assistance to create an ideal portfolio. If you have any doubts regarding when and where to invest, experts will provide you with valuable advice so that you can achieve your financial goals efficiently.

Content composed with the instant Online HTML editor. Please purchase a HTMLg license to remove the promotional messages from the edited documents.

Have Referral Code?

Similar articles

  • Responses
  • Patidar Samaj

    - 2 hrs ago

    This article claims RJio was given a "Backdoor Entry" into the 4G Based Voice Routing. The peculiar aspect is without the Voice License, Rjio would have been a mere ISP. With the license, it is now a holistic communications service provider, with ability to exponentially scale the bouquet of products. The events indicate it was meticulously planned way before the auctions because the auctions were clear on the agenda: 4G for internet only.

Load More
mutual-fund

Why to Choose Mutual Funds Instead of Directly Investing Into Equities?

Whether to invest in equities or mutual funds is a question that has plagued every investor. As someone who needs the best value for his/her investment should you invest in equity directly or via mutual funds?

Let’s start by first understanding what these two terms ‘equities’ and ‘mutual funds’ stand for-

Equities- Equities generally represent ownership of a company. If you own any equity in a company, you are a part owner of the said company (depending on how much equity you own).

Mutual Funds – It is an investment scheme which is professionally managed by an asset management company. It pools together the resources of a group of people and invests their money in equities, debentures, bonds and other securities.

Why choose mutual funds over equities?

For people who’ve never invested in either stocks or mutual funds, it is hard to know which is better and where to start. Broadly speaking, if you are a novice investor, mutual funds are not only less risky but also way easier to manage. Here are some ways in which investing in mutual funds is beneficial as opposed to investing in equities -

Diversification

Mutual funds provide more diversification as compared to an individual equity stock. When you invest in equity, you are investing in a single company which has its inherent risk. For example, if you invest Rs.20,000 in buying equities of one company, you could face a total loss if that particular company performs poorly in the market.  

If you invest the same amount in mutual funds, it will be invested in different kinds of stocks and financial instruments, high-risk and low-risk both, so you might not face total loss even if one company does poorly.

Scale of Investment and Lower Costs

For an individual investor buying and selling stocks is a difficult task due to its high price. Thus, any gains made from stock appreciation are nullified if the overall trading costs are considered. Comparatively with mutual funds, as the money is pooled from a large number of investors, the cost per individual is lowered.  

Another advantage of mutual funds is that you don’t need to invest large sums of money. Buying equities for a profitable venture needs huge amounts of money, a minimum of few lakhs. With mutual funds, you can start with Rs.1000 and earn profits on that as well.

Convenience

Keeping an eye on the markets everyday is a time-consuming business, especially if you are investing as a side gig. There are people who spend their lives studying the market and still end up sustaining heavy losses. Though investing in mutual funds does not guarantee high returns, it is stress-free and needs less work as compared to investing in equities.

To sum it up

It is important to remember that mutual funds have their own disadvantages as well. Thus, as with any financial decision, educating yourself and understanding the suitability of all the available options is the ideal way to invest. 


Banner

Features of an ideal financial portfolio

Nutan Gupta

22 Sep 2017

A financial portfolio is a collection of investments which an investor chooses to invest in to achieve his/her financial goals. It is a combination of assets such as stocks, bonds, and cash and provides much-needed diversification to an investor so that he can lower the risk of loss by way of evenly distributing the risk across various investments.

Every investor is always looking for a financial portfolio that is ideal according to his/her need. The correct mix of investments for you depends entirely on your financial situation and your financial goals. Although, each investment portfolio is different, all financial portfolios have a few features in common:

Diversification:

Investing includes a high risk of losing all of your money; extensive diversification of the portfolio is a must to safeguard you from this potential hazard of losing capital and income. Diversification refers to the process of investing in different asset classes and in the securities of various companies in the attempt of reducing the overall risk of investment and to avoid the poor performance of the portfolio due to incurring a loss in a single security.

Diversification can help an investor manage risk by the distribution of risk factor among the investments. For instance, you have invested Rs 1,00,000 in ABC company and Rs 2,00,000 in XYZ company. You incur a loss of Rs 50,000 in the investment of ABC and a profit of Rs 1,00,000 in the investment of XYZ company. Here, you have managed the risk of losing 50,000 by gaining Rs 1,00,000 in the investment of XYZ company. Had you have only invested in ABC company; you would have incurred a loss of Rs 50,000. Hence, diversification is one of the most important factors in creating an ideal financial portfolio.

Liquid Assets:

A liquid investment is an investment which can be transformed into cash immediately without losing the invested money. Liquid investments help investors meet emergencies. Portfolio comprising of liquid investments allows the investors to accumulate funds by the sale of liquid securities or borrowing by extending them as collateral security. It requires you to invest in high grade and readily saleable investments to ensure their liquidity and collateral value. This will make sure that you can sell your stocks whenever you want and convert them to cash without having to wait for a long time.

Simple and Transparent:

Your financial portfolio should be straightforward. You should understand what each element of your portfolio is, and what it is supposed to do. It should be simple without being complex and shouldn't have additional components. You should be able to quickly review and assess your portfolio's performance from a few account statements that each contains no more than a handful of securities and transactions each year. This simplicity will allow you to monitor your investments without having to give a lot of time to manage your investments.

Tax Efficient:

While planning a financial portfolio, the investor should seriously consider the tax consequences of the investments. An ideal financial portfolio achieves its goals at the lowest cost possible; if your investments are tax efficient, you can maximize the quality of your investment strategy and of the portfolio it produces.

A lot of online websites provide you with the much-needed assistance to create an ideal portfolio. If you have any doubts regarding when and where to invest, experts will provide you with valuable advice so that you can achieve your financial goals efficiently.

Content composed with the instant Online HTML editor. Please purchase a HTMLg license to remove the promotional messages from the edited documents.

Have Referral Code?