How to make Ideal investment Portfolio?

An investor’s collection of assets is known as an investment portfolio. Investment instruments such as bonds, stocks, mutual funds, pension plans, real estate, and even tangible assets like gold may be included in this portfolio (coins or bars). In essence, this refers to any asset that has the potential to increase in value or yield returns. Many even invest in priceless artifacts in hopes of making money later.

Diversification across different asset classes is a commonly followed practice in building a portfolio. It is one of the most effective ways to reduce risk and possibly improve rewards is to spread your investments across various asset types.

An excellent portfolio has a wide range of investments in it. Government bonds, small-cap stocks, and foreign currencies are some examples of this. However, it’s crucial to manage your portfolio wisely. Otherwise, your returns can be lesser.

Asset Allocation

Spreading your investments over a variety of asset classes is known as asset allocation. That often refers to a combination of securities from the cash or money market, bonds, and stocks. There are subclasses for each of these three classes:

● Shares of companies with a market capitalisation over Rs 20,000 Cr are known as large-cap stocks. E.g. Reliance, TCS

● Equities with a market capitalization between Rs 5,000 Cr and Rs 20,000 Cr are referred to as mid-cap stocks. E.g. Indigo Paints, Tata Elxsi

● Companies with a market capitalization of less than Rs 5000 Cr are considered small-cap companies. As a result of their decreased liquidity, these stocks typically carry a higher risk. E.g. Usha Martin, NOCIL

● Securities that are listed on a foreign market and were issued by a foreign corporation are known as international securities. E.g. Microsoft, Google

● Fixed-income instruments are less irregular and hazardous than stocks since they are highly rated corporate or government bonds that pay the bearer a fixed amount of interest on a regular basis or at maturity and repay the principle at the conclusion of the period

● Money market investments are those made in debt that will mature in one year or less. The most popular type of investment in the money market is Treasury notes, or T-bills

● The tax-efficient Real Estate Investment Trust (REIT) owns a portfolio of income-producing real estate assets. A sponsor establishes a REIT by transferring ownership of assets to the trust in exchange for the trust’s units.

Risk & Return

Equities are the most risky but also have the biggest potential return. Being backed by the government, Treasury bills offer the lowest risk but also the lowest return. Investors with a higher risk tolerance should choose for high-risk investments. In other words, they can tolerate significant price fluctuations. An investor who is younger and has a long-term investment account can anticipate a recovery. A retired couple might not want to put a major portion of their financial security at risk.

According to the general rule, an investor should gradually cut back on risk exposure over time in order to retire with a respectable sum of money in secure investments. For this reason, asset allocation-based diversification is crucial. Each investment carries a unique set of risks and market turbulence. Your entire portfolio is protected by asset allocation from the ups and downs of a single stock or class of securities.

Portfolio managing Strategy

High-risk, high-return investments may appeal to investors with extended time horizons and higher amounts to invest. Low-risk, low-return investments may be preferred by investors with smaller portfolios and shorter time horizons.

Many investing firms develop a series of model portfolios, each of which has various ratios of asset classes, in order to simplify the asset allocation process for clients. Each portfolio satisfies a specific level of risk tolerance among investors. These model portfolios often range from cautious to extremely aggressive.

Conservatives Portfolio

Huge sections of the total are typically allocated to lower-risk securities, such as fixed-income and money market instruments, in conservative model portfolios. Protecting your portfolio’s principal value is the key objective of a conservative portfolio. These models are frequently referred to as capital preservation portfolios for this reason.
Even if you are extremely cautious and inclined to completely avoid the stock market, a small amount of exposure to stocks can assist counteract inflation. The equity part might be put into an index fund or a portfolio of reputable blue-chip corporations.

Moderately Aggressive Portfolio

Due to the nearly equal allocation of assets between fixed-income securities and equities, moderately aggressive model portfolios are frequently referred to as balanced portfolios. Growth and income are in equilibrium. Investors with a longer time horizon (often more than five years) and a medium level of risk tolerance should utilise this strategy because moderately aggressive portfolios have a greater level of risk than conservative portfolios.

An Aggresive Portfolio

Since equities make up the majority of aggressive portfolios, their value can vary greatly day to day. Your major objective if you have an aggressive portfolio is to achieve long-term capital growth. A capital growth strategy is another name for the approach used by an aggressive portfolio. Investors with aggressive portfolios typically include some fixed-income products to enhance diversification.

These model portfolios and the corresponding strategies can only serve as a general framework. The ratios can be changed to meet your specific investing requirements. Your future money demands and your style of investing will determine how you adjust the models above. Though the above listed model portfolios are a guideline, the portfolio for each individual depends on their ambitions and social status. For eg. two person of the same age where one is
from a well to do family with inherited wealth will have a different portfolio as compared to someone who is the sole breadwinner of the family with responsibility of children and parents at the same time.

You’ll spend less time investigating and comprehending numerous techniques if you keep the aforementioned advice in mind while determining your perfect investing portfolio. As an alternative, you can invest in the portfolios available at Univest that are easily accessible and have been selected by financial analysts who have been certified by SEBI.

 

About the Author

Ketan Sonalkar (SEBI Rgn No INA000011255)

Ketan Sonalkar is a certified SEBI registered investment advisor and head of research at Univest. He is one of the finest financial trainers, with a track record of having trained more than 2000 people in offline and online models. He serves as a consultant advisor to leading fintech and financial data firms. He has over 15 years of working experience in the finance field. He runs Advisory Services for Direct Equities and Personal Finance Transformation.

Note – This channel is for educational and training purpose only & any stock mentioned here should not be taken as a tip/recommendation/advice

You may also like: Basics of stock market portfolio management