Stages and principles of investment portfolio formation

2024 Author: Howard Calhoun | [email protected]. Last modified: 2023-12-17 10:16

The topic of forming and managing an investment portfolio has been gaining more and more popularity in recent years. The economic crisis has passed, people began to accumulate savings. Someone was more fortunate, and the money was inherited. How to properly dispose of the deferred money? Where to invest and not burn out? What are investments and how to use them correctly? What does an investment portfolio look like and what are its types? What needs to be done to form a portfolio of investment projects?

What is investment?

Investor's behavior is associatively reminiscent of the work of a coach. If we consider financial investments as players, the task of the investor is to correctly place each member of the team on the field. Depending on the talents and strengths, the players benefit the team and lead to victory. Investments, well-chosen, well-selected financial strategies and products are valuable players that can win the match. Whenif one member of the team is taken out of action, the rest of the team is able to fight for victory.

Investments in the classical sense are the client's financial investments. Where a person invests his money is his purely personal matter. In general, increasing capital with the help of financial instruments is an investment.

Investment portfolio

Creating a permanent source of passive income is the task of the investor. Passive income is the money that comes through the "work" of savings (interest, insurance payments, dividends, etc.). An investment portfolio in the financial environment is usually called a package of client assets, in which various sources of passive income are combined in a certain way. The way in which the types of securities and other sources of income are distributed in percentage terms is decided by the client.

An experienced investor is looking for the most efficient way to manage assets. It would seem that investing in the most highly profitable business is as easy as shelling pears. But this strategy is attractive only for beginners. With experience comes the understanding that the main principle of forming an optimal investment portfolio is carefully calculated risks. As a rule, the maximum percentage on investments is promised where the risk of losing investments is high.

The savvy investor does not seek to buy the securities with the highest returns. The main goal of his investments is minimum risks and maximum income. The principle of forming an investment portfolio is the liquidity of funds, the ability to withdraw your own money from circulation intoany moment, without the risk of losing them.

If you use one source of income, there is a high risk of not being able to receive money back at any convenient time. As a rule, high-yield investment projects do not provide such an opportunity until the end of the term.

For the safety of investments, it is recommended to use several financial capital formation instruments.

Risks

It is impossible to exclude them completely in the investment process. Risk reasons:

• Wrong companies to invest in. The investor chose the business that would not bring income (new or in crisis), violated the principle of forming an investment portfolio.
• Inflation. The depreciation of cash as a percentage exceeds the return on assets. It is required to take this point into account in advance when choosing a strategy.
• Succumb to elemental impulses. Experienced investors know not to sell assets if everyone is selling. The same goes for shopping.

Varieties of portfolios

There is no clear definition of portfolio classes. This is due to the fact that asset management is a purely individual matter. Therefore, investors often mix different strategies to achieve maximum results. Every novice investor needs information about the principles of forming an investment portfolio and their main varieties.

Profit portfolio type

As the name implies, the investment strategy focuses on maximizing profits. The risk mustbe minimal. Investors with such a portfolio invest in shares of large state-owned companies. In the long run, they bring the owner from 10 to 25 percent of passive income. The disadvantage of such a portfolio is a wide time frame. The calculation is for a long-term relationship.

Risk portfolio

The investor is ready to risk his own capital to achieve maximum profit. Invests in the shares of the latest corporations, fast-growing companies, modern developments. There is a high chance of capital loss if the stock loses value.

For Growth

Income grows by increasing the value of purchased securities. The principle of forming an investment portfolio from its owner is as follows: he buys shares of actively developing companies that use the latest technologies. When the share price rises, the owner sells it. Additional capital is formed from the difference in price. The risk for such a portfolio is high, so it is used with benefit mainly by experienced investors.

Balanced

The principle of forming an optimal investment portfolio is capital preservation. The owner buys securities of trusted companies. The profit from them does not come very quickly, but there is no risk for the loss of capital. Plus a stable income, albeit not quite high.

Short-term

High-risk portfolio. The formation of an investment portfolio of securities takes place with the participation of the owner in transactions with maximum liquidity. A quick refund is also important. Instrument of this portfolioserve as currency transactions, stock speculation.

Long-term

Most of the billionaires known to the people publicly declare that this method of capital accumulation is the most reliable. Finance is invested in companies that bring a stable income. At the same time, profitability will become tangible in 10 years or more. Such a portfolio is suitable for those who do not need an urgent withdrawal of funds in the coming years.

Stages of forming an investment portfolio

Before you decide to start investing, you need to consider some points:

1. You shouldn't be in debt. First, pay off all loans and distribute debts to friends. No "anchors" that can pull you back from a bright investment future.
2. You can't invest your last money. In an emergency, they may be needed, and assets will have to be withdrawn. Then the whole capital formation plan will go down the drain.
3. Arrange a financial airbag. It consists of four, and preferably six monthly expenses. This money should be freely available. For example, you can store them on a debit card at interest or place them on a short-term deposit. Funds can only be used in an emergency (job change, illness, unplanned expenses, etc.).
4. Choose a broker. A broker is the company through which money is deposited into an individual investment account and withdrawn from there. If there are no problems with depositing funds into the account, then withdrawing them from there can beproblematic, but provided you have an unreliable broker. There should not be any additional illegal conditions (for example, bring a friend to the program). Study the contract carefully.
5. Learn. Investing requires constant updating of knowledge. Communicate with experienced investors, it is useful to visit business trainings on the topic of investments. They will provide a huge amount of information about the principles and stages of forming an investment portfolio. Find your source of material, one with which it is convenient and easy to comprehend new knowledge.

And now the moment has come when you are ready to invest. You can start with any amount. It is possible to add to the account later, when experience in capital circulation comes.

Target orientation

The first step in the formation of an optimal investment portfolio is the right target. Vague motivations "to earn something if you can" - this is not the goal. The final result is determined by numbers. Understand whether you want to raise capital by 100% or save up for a down payment on a mortgage (total). A specific, tangible and interesting goal for an investor to form an investment portfolio is the most important thing in business. Having in mind a clear vision of the result of their labors, the investor will not mindlessly risk capital.

There is no place for impulsive decisions in his strategy. The absence of unjustified risk gives confidence that there will be no new mistakes and disappointments in investments. You can resort to the help of a financial consultant at first. Needto understand that it will not be possible to quickly earn a high income immediately, a basic level of knowledge of the investment system is required. After gaining initial experience, you can try to conduct risky operations.

Investment strategy

The second stage in the formation of an investment portfolio of securities is the correct filling of the portfolio. Of those discussed above, an experienced investor mixes to his taste. The choice consists, in fact, of three standard strategies: aggressive, passive or moderate.

Aggressive strategy implies high risks with the possibility of obtaining maximum income in a short time. It requires constant involvement in the process and understanding of what is happening. Continuous buying and selling of assets, reinvestment. Such a strategy requires knowledge, time and sufficient funds from the account holder, the risk must be justified.

With a passive strategy, accumulation is much slower. Investments are made exclusively in reputable companies. On average, funds have been in the account for more than ten years. As a result, they will bring a stable high income.

A moderate strategy implies the most reasonable and interesting approach: dividing assets into several parts in percentage terms. Where one part goes to long-term projects, various securities are redeemed with the help of another, a third is placed on a deposit, a fourth is invested in life insurance, and so on. This strategy protects the investor from all sides. It is possible to keep the bulk of the capital,in case of unsuccessful investment.

And guaranteed income from each source of placement. The risk of loss in this case is minimal. The bulk of the capital will remain in any case. It must be remembered that it is not necessary to split capital into many parts, 8-9 is enough. Otherwise, it is difficult to keep track of all the parts, and the risks of losses increase.

Market Analysis

This is the third stage in the formation of a financial investment portfolio. Get acquainted with the practice of experienced investors, practice on a virtual account. Choose a reliable broker, study the exchange, try to imitate the actions of successful investors who allow beginners to watch them. Training and practice on small amounts will form invaluable experience for larger investments.

Assets

The fourth of the stages of investment portfolio formation. This way of increasing capital is good because you can manage assets yourself. The owner himself decides what and how much to buy and when to sell, where he will invest and where not. Therefore, all risks are in individual responsibility, there is no effect of roulette or other gambling. Choose to invest in a business that you know at least a little about. Unallocated funds are recommended to be exchanged for currency if there are no options where they can be allocated.

Monitoring

Even if you decide to use the most passive source of income, the strategy is conservative and the profit is not expected very soon, periodically go to the exchange and follow what happens there. Might need something-then buy or redistribute assets. Don't let things go by themselves. Investments require due attention.

How to choose a broker?

There are rules for selecting a reliable broker so that an unexpected unpleasant situation does not happen when withdrawing funds. Here's what to look for:

1. Availability of a license. You can check the authenticity on the website of the Central Bank of the Russian Federation.
2. Have access to the markets you need (foreign exchange transactions in foreign markets, the precious metals market, etc., depending on requirements).
3. It is recommended to choose a broker from the leaders. These companies have state support. Top 10: BCS, Finam, Renaissance, Otkritie, VTB, Sberbank, Alfa-Bank, Promsvyazbank, IT Invest, Kit Finance.
4. Pay attention to broker fees. Depending on the investment strategy, some of them may not be suitable.
5. Ability to use user-friendly software.
6. Check out the additional services provided by the broker. Ability to use the services of a financial advisor, model portfolios, etc.

Following these simple rules when choosing a broker, you will save time and be able to start investing faster. Without forgetting about the principles and stages of investment portfolio formation.

Optimization

The first tool is portfolio diversification. Its essence boils down to the distribution of assetsas follows: 50-70% of all finances are spent for the long term, 20% for highly profitable, but risky companies. The balance is transferred to a deposit account or exchanged for metal. You need to maintain harmony within the portfolio and not invest in one segment.

The second way is the distribution of finances among banks on deposit accounts. If the amount is more than 1.4 million, then it is not worth keeping these funds in one bank, as the sum insured will increase. There are ready-made bank investment offers that can be used as an alternative to a deposit. In this case, the client himself chooses the area in which he will invest.

Third - the purchase of real estate. Projects at the stage of excavation or construction are in particular demand. The yield on such investments is 30-70% on the basis of a transaction with a sale after construction is completed.

In closing

What gives the investor to form an optimal investment portfolio? The article provided detailed recommendations. The main thing is the security of capital. The use of a combined portfolio brings predictable income, the possibility of flexible management of monetary assets. Portfolio liquidity allows you to quickly buy and sell securities. The income received can be reinvested and enjoy the fruits of investment for many years to come.