Portfolio investments are Investments in Russia. Attracting investments

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

In the context of the recent crisis, the topic of investment can be very relevant. Confidence in securities is returning. To some extent, the economic course of the world's financial structures will be building a strong market economy with the necessary circulation of securities and vigorous investment activity in conditions of long-term financial stability. That is why the issues of competent, optimal behavior in the market are inevitable and are of paramount importance. Under such conditions, investors feel the need for developed and effective economic technologies. And therefore, an important factor for active productive actions is the creation of an investment portfolio. However, portfolio investment - what is it? What is their importance and what is the essence of such technologies?

Return and risk

It is difficult to find securities that are both highly profitable, highly reliable and highly liquid. Usually papers have one or two of the above qualities. Portfolio investments are the distribution of the potential of the investment portfolio between different groups of assets. Goals and objectives, initially set during the formation of the portfolio, determine the percentages between groups and types of assets. Competently taking into account the needs of the investor in the formation of a portfolio of assets that would combine stable profitability and acceptable risks is the main task for any manager in financial institutions. Portfolio investment is a wonderful investment method that allows you to find a balance between profitability and risks.

Who invests

Investment attraction is a way of using financial resources for long-term investments. Investments are made by individuals or legal entities, which are divided into investors, players, speculators and entrepreneurs, depending on the degree of commercial risks. Who are they? The investor is more interested in minimizing risks. The entrepreneur invests at a slightly higher degree of risk. The speculator is willing to take a predetermined risk. A player is a person who is ready for any degree of risk. Investments in Russia attract all participants - from large investors to players and speculators.

Types of investments

What are investments? Direct, portfolio, venture and annuity. It is worth understanding each concept.

Venture capital is a risky investment, which is an investment in new areas of activity that can show high returns, but alsohave a high degree of risk. Venture capital is usually allocated to unrelated projects for a quick return on investment.

Direct investments are investments in the authorized capital of the entity to subsequently generate income and obtain the right to participate in the administration and management of the entity.

Portfolio investments are processes associated with the formation of an investment portfolio, which is a combination of purchased securities, as well as other assets. A portfolio is the sum of investment values that serve as a tool to achieve the goals previously set by the investor. By and large, financial portfolio investments can contain both the same type of paper (stocks) and a variety of values (bonds, pledge certificates, certificates of deposit and savings, insurance policy, and so on).

Annuity is a type of investment that brings income to the depositor at certain intervals (pension and insurance funds).

Portfolio importance

Investment strategy is determined by factors such as the immediate capabilities of the investor himself and the state of the market. Portfolio investments have a number of advantages and features over other types of capital investments, precisely due to the presence of a portfolio, which refers to securities owned by a legal entity or an individual. In developed stock markets, the portfolio already acts as an independent product, and its sale in shares or in its entirety satisfies the requirements.an investor to invest in the stock markets. Some investment qualities are sold on the market with given parameters and ratios between risk and return, which can be improved in the process of managing this portfolio.

The attractiveness of portfolio investment

Portfolio investment is a convenient tool that allows you to monitor and evaluate the results of investment activities in different market sectors. As a rule, such a portfolio is a set of bonds and stocks with different degrees of risk, as well as a number of securities that have a fixed income guaranteed by the state, that is, which have a minimum risk of losses on current receipts and principal. Portfolio creation is an attempt to improve and optimize investment conditions, when a set of securities is endowed with characteristics that are unattainable by a single security, but are possible only with a combination. In the process of forming an investment portfolio, new qualities are achieved with the necessary characteristics for a set of securities. Thus, portfolio investment is a tool that provides the required return with minimal risk. It is believed that such types of money management indicate the maturity of the stock market in the country. This is absolutely true, since portfolio investment in Russia was virtually impossible back in the mid-nineties.

Who is interested in portfolio investment

From a practical point of view, there are two types of interested customers. The first is those before whomthere is a problem with the allocation of free funds. These include inert and large state corporations, various funds. The second type is small banks, small brokerage houses that have caught the needs of the first type of clients and put forward the idea of portfolio investment as a lure. Naturally, it is difficult to talk about competent clients in the CIS, since the process of forming professional stock market participants and qualified large investors is still far from complete. However, demand is increasing every year as the investment market (portfolio market) is also growing.

Principles of portfolio formation

There are a few key considerations to keep in mind when building an investment portfolio:

- investments must be safe (investments must be as invulnerable as possible);

- income must be stable;

- it is necessary to adhere to the considerations of the liquidity of investments (that is, the ability to quickly acquire or sell them).

Naturally, no security has all these qualities at once, which potentially increases the risks of portfolio investment. However, the very concept of a portfolio implies a compromise. For example, if a stock is reliable, then it will have a low return, as those who prefer reliability will pay more and “beat” the income. Portfolio investment is the achievement of the optimal combination of profitability / risk for the investor, that is, a set of tools should increase income to the maximum and reduce risks to a minimum. This begs the question of how to define thisproportion between risk and return. There are several principles for building a classic portfolio: diversification, sufficient liquidity and conservatism.

The first principle is conservatism

The ratio between risky and safe shares should be such that the possible loss of the risky share is covered by the income from the safe part. The investment risk consists only in earning a lower return, not in losing the principal. However, of course, without risk, it is impossible to count on high returns.

The second principle is diversification

By and large, this is the basic principle of any investment portfolio. Its essence is to "not put all your eggs in just one basket." That is, do not invest in only one type of securities, no matter how profitable this type of investment may seem. Such restraint avoids damage. Reducing risk through diversification means that low returns on some securities will be offset by high returns on others. Attachments are laid out both between segments and within them. Ideally, risk is minimized by including different types of such a concept as investments: business, real estate, securities, precious metals, and so on. This is closer to the ideals of large investments: regional and sectoral diversification.

The third principle is sufficient liquidity

The essence of the principle is to keep a certain part of marketable securities at leastsufficient level to carry out unexpected profitable trades. Practice shows that it is profitable to keep part of the capital in highly liquid assets, because this allows you to quickly and efficiently respond to possible changes in market trends.

Portfolio return

Portfolio investment is one of the investment methods, the income from which is the gross profit from all securities included in this portfolio. However, there is a problem of matching profit and risk, which must be resolved promptly. The structure of the portfolio must be flexible and constantly improved, taking into account the wishes of investors regarding the same risk/reward ratio. Considering such a question as creating a portfolio, it is necessary to determine the main parameters:

- choice of the optimal portfolio type;

- assessment of an acceptable combination of return and risk;

- determination of the initial composition of the portfolio with the sorting of securities by specific weight (risk / income level).

Undoubtedly, the question arises of what types of portfolio investments are.

Main types of investment portfolios

Attracting investments through the formation of a portfolio has an undeniable advantage in the form of a prompt solution of various specific tasks. To do this, several types of portfolio are used, which are, in fact, its main characteristics based on the ratio of risks and profitability. An important feature for classifying portfolios is the source of income. This may be an increase in value or current payments - interest, dividends. Main typesonly two: an income portfolio (aimed at making a profit through dividends and interest) and a growth portfolio (focused on the growth in the value of investment assets that make up the portfolio).

Growth portfolios

The goal of a growth portfolio is to profit from the growth in the value of assets. This type can be either aggressive (maximum profit taking into account high risks) or conservative (moderate profit and minimal risks). An aggressive portfolio is usually less stable, as it is based on young promising companies. The conservative one consists of shares of larger enterprises. It has much more stability and lower risks, but also significantly lower returns.

Income Portfolio

The income portfolio includes stocks that are characterized by a moderate increase in their price and stable dividends. The purpose of creating such a portfolio is to obtain a stable income with minimal risk. Objects for this type of portfolio investment: reliable market instruments with a balanced ratio of market value and interest paid. There are also two subtypes of this portfolio:

- portfolios of regular income that bring an average level of income, but are formed from reliable assets;

- portfolios of income securities, which consist of bonds and securities that bring a higher income, but retain an average level of risk.

Combined income and growth portfolio

Combined portfolio investments are an attempt to avoid losses both from low interest or dividend payments, and from a fall in the value of an asset in the stock market. Some of the papers bring an increase in the cost of capital, while the other - income. In this case, the loss of one of the two parts will be compensated by the other. There are several types of this type of investment:

- Dual-purpose portfolios, which include securities that bring income to the owners when increasing the invested capital. In this case, we are talking about securities of dual-use funds that issue two types of securities. The former are focused on high income, while the latter are focused on capital gains.

- Balanced portfolios, which involve a balance of not only income, but also the risks that accompany transactions with securities. Therefore, this type of investment portfolio consists of approximately equal proportions of high-yield assets and securities with a rapidly growing value. Such a portfolio may also include such stock market instruments as preferred and ordinary shares, bonds.

Portfolio structure and investment objectives

Assessing an acceptable combination of income and risk in accordance with the calculation of the proportion of a portfolio consisting of securities with different levels of income and risk is the main goal of any investor. This task is a consequence of the general principle that operates in the stock market: the more risk an individual security carries, the more income it should have. This principle also holds in reverse. Thisprinciple and should be guided when choosing the type of portfolio and further management strategy: conservative, aggressive, moderately aggressive, irrational, risky, unsystematic, highly reliable and low-yielding, or vice versa. An enterprise's investment structure and portfolio management strategies are directly dependent on investment objectives.