What is a Finance Portfolio?

An investment portfolio is a collection of stocks, bonds, financial derivatives, etc. held by investors or financial institutions. The goal is to spread risk. A portfolio can be viewed as a portfolio on several levels. The first level of combination, due to the dual needs of security and profitability, consider the combination of risk assets and risk-free assets, for security needs to combine risk-free assets, for profitability needs to combine risk assets. The second level of combination considers how to combine risk assets. Since any two asset portfolios with poor or negative correlations will get a risk return greater than the risk reward of individual assets, it is possible to continuously combine assets with poor correlations. Keep the effective front of the portfolio away from risk. ^[1]

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Two levels of the fund's investment portfolio

The first level is the combination of various assets such as stocks, bonds, and cash, that is, how to allocate proportionally among different assets; the second level is the combination of bonds and stocks, that is, in the same asset class Which kinds of bonds to choose, which kinds of stocks, and their respective weights.

Investors invest their funds in different proportions of different types of securities or multiple varieties of the same type of securities separately. This decentralized investment method is an investment portfolio. Risk can be spread through the portfolio, that is "cannot put eggs in a basket", which is

The terms of some funds clearly stipulate that the investment portfolio must be no less than 20 varieties, and there is a certain percentage limit for buying each type of securities. Investment funds have accumulated less and more, so they have the power to diversify into dozens or even hundreds of securities. Because of this, it makes

Use the "one hundred minus current age" formula when building a portfolio. This formula means that if you are 60 years old, you should invest at least 40% of your funds in

For the working class, the simplest way to manage money is to invest in funds, and this "lazy money management law" is becoming increasingly popular. Financial management is not exclusive to the rich. As long as you pay attention, you will have unexpected gains.

Clarify the "eight taboos" of fund investment portfolio

There should be "eight taboos" for fund portfolios: no clear investment goals, no core portfolios, excessive non-core investments, portfolio imbalances, too many funds, too high expense levels, no set selling standards, and similar fund choices improper.

Building the core portfolio

First, investors must determine a clear investment target based on their risk tolerance, and then choose three to four funds with stable performance to form the core portfolio, which is the main factor that determines the long-term performance of the entire fund portfolio. Large-cap balanced funds are suitable as the core combination of long-term investment targets. As for the core combination of short-term investment targets, funds with large short-term and medium-term volatility are more suitable.

Investment diversification increases returns

Second, in addition to the core portfolio, you may wish to buy some industry funds, emerging market funds, and funds that invest heavily in certain types of stocks or industries in order to diversify your investment and increase the entire fund portfolio's returns. Small-cap funds are also suitable for entering non-core portfolios because they are more volatile than large-cap funds. For example, the core portfolio is a large-cap fund, while the non-core mix is a small-cap fund or an industry fund. However, these non-core portfolio funds also have higher risks, so they must be carefully restricted to avoid affecting the entire fund portfolio too much.

Focus on risk diversification

There is a saying in the investment field: don't put eggs in a basket, many people understand, which means spreading risks. What needs to be emphasized here is that the degree of decentralization of the entire portfolio is far more important than the number of funds. If the funds held by investors are all growing or concentrated in a certain industry, even if the number of funds is large, the purpose of diversifying risks has not been achieved. In contrast, an index fund covering the entire stock market may be more diversified than a combination of multiple funds.

In addition, investors should regularly observe the performance of each fund in the portfolio, compare their risks and returns with similar funds, and consider replacement at an appropriate time. This can also spread the risk to a certain extent.

The market continues to fluctuate and risks are highlighted. When choosing a fund for financial investment, adhering to the concept of "a pile of eggs and multiple baskets", it is better to choose a fund as an investment portfolio to help you resist risks. The fund portfolio should combine its own life cycle, risk tolerance and investment period to invest in multiple types of funds, balance risk management, enhance investment stability, and

The portfolio construction process consists of the following steps.

First, you need to define the range of securities that are appropriate for your choice. For most planned investors, the focus is on

Misunderstanding 1: bonds are equivalent to security

The truth is: the security of bonds varies

Until recently, U.S. Treasuries were considered a zero-risk product, and it was thought that the issuer (that is, Uncle Sam) would never have no money to pay off the debt. After the U.S. Treasury bond rating is downgraded, investor awareness may be able to rise to a higher level and see that no matter what bond there is, there is hidden risk. Investment advisers say bonds still have an undeniable position in the portfolio. Bonds are usually held to generate income and ensure investment stability. When stocks fall, bonds usually rise, at least not as much as stocks. However, the risk levels of different bonds are very different, and some bonds are more likely to suffer huge losses than others. Please note: The higher the bond yield, the greater the risk. For example, high-yield corporate bonds (commonly known as "junk bonds") yield on average 6.6 percentage points higher than U.S. Treasuries, and they have a higher risk of default.

Positive answer: Don't pursue high returns

Even if investing in high-yield bonds, the chances of making money are greater than losing money, but these bonds have greater volatility, and the price fluctuations are more similar to fluctuating stocks, and not as stable as ordinary bonds. To reduce risks, the proportion of high-yield bonds in investor bond portfolios should not exceed 7%, and the investment portfolio should be diversified, with both high-yield bonds and municipal bonds, investment-grade corporate bonds, and overseas bonds. In addition, in response to the risk of rising interest rates that investors cannot control (which will reduce the value of bonds), Florence recommends sticking to bonds with shorter maturities (7 years or less) because these bonds have less loss when interest rates rise .

Misunderstanding 2: Think your portfolio is diversified enough

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The fact is: holding more than a dozen funds (or holding stocks and bonds at the same time) does not necessarily equal investment diversification

Data for 2010 showed that families investing in mutual funds held an average of seven funds per household. This is enough, is it diversified enough? But this is not the case. A closer look will reveal that even with a large number of funds, the concentration of the portfolio may still be much higher than you originally thought. Investors often don't realize that they may hold two or more funds with very similar investment strategies, and the name or investment history of a fund does not always reflect its investment strategy. For example, Standard & Poor's data shows that the $ 61 billion Fidelity Contrafund with asset management and the $ 24 billion T. Rowe Price Growth Stock with asset management The main investment objectives are information technology stocks and non-consumer essential stocks. Investors holding these two funds at the same time are actually betting on the two types of stocks.

At the same time, Robert Wiedemer, managing director of Besolsda, Maryland-based wealth management company Absolute Investment Management, said there are asset classes that can be invested in mainstream mainstream stocks and bonds Product performance boosts portfolio performance when the trend is poor, but too many investors ignore them. He said that he allocated about 20% of the client's portfolio to gold and silver through exchange-traded funds, and that gold and silver tended to stay strong when stocks fell. Eleanor Blayney, a consumer rights activist at the Certified Financial Planner Board of Standards, a non-profit investment advisory certification body, said expanding overseas stock exposure may be a wise choice at a time of weak US economic growth.

Positive solution: lift the veil and see the true face of the fund

Rosenbluth said investors should look at what their mutual funds are investing in and be aware of duplicate industry or company names. He said that a fund's website should list the top 10 holdings of the fund and the investment industry distribution.

Myth 3: You know when to sell

The truth is: most people throw it too late

No one wants to hold a declining stock all the way to black. In fact, many investors plan to close a position when a stock or stock index falls below a certain level. But in the words of veterans, when it's time to sell, investors can't. As a result, the situation will only get worse. In the end, investors have to endure the sell-off. The huge losses have taken them seriously and they are reluctant to return to the market for too long.

Positive solution: Establish an automatic selling mechanism

Don't you plan to sell at a certain level? Then set a stop loss order for your stock or fund position, and let the securities firm automatically sell when the stock falls below a price level.

Misunderstanding 4: Think you have a plan

The truth is: your investment decision is just a whim

Holland said that the market suffered a severe setback in early August and the history of single-day declines is rare, and many investors may not know what to do next. He also said that most investors may not have long-term investment plans at all. Even investors who have been assisted by professionals have found that they do not have reliable concrete plans. A June survey of 1,011 adults by KRC Research for the Certified Financial Planner Board of Standards found that only 42% of respondents listed their investment plans in writing and another 11% There are only a few notes and a few ideas. But experts caution that in the long run, always changing your mind is bad for investors. Vanguard's Phelps said, "If you only focus on the immediate gains and losses and ignore the long-term goals, the harm will ultimately outweigh the benefits."

Positive solution: write a written plan

According to Holland, it's good to list your investment preferences and list the parameters you want to set for your portfolio. To determine how much equity risk exposure you can afford, you also need to determine how many bonds or other investment products you must hold. Holland said that you can also make detailed investment adjustment plans in advance in your financial plan to prepare for the large-scale fluctuations that may occur in the market. "Planning can help you better manage your investment."