There are basically five types of portfolios which exist in the market depending upon the investor’s selection and management of funds. Diversification is one of the biggest players in categorizing funds. It makes good sense to diversify your money in different types of stocks, there are several ways to do so. Before you jump into building up your diversified portfolio and expect returns out of it, you need to be well-versed with the investment jargon and basic understanding of investment concepts. Here are some insights into the different types of portfolios and how to go about them;
- The aggressive portfolio
As the name suggests, aggressive stocks are those which experience high risks and high returns. These stocks have high beta which is the measure of sensitivity towards the market volatility. High beta indicates inflated market fluctuations as compared to other stocks. For example, if you have a portfolio with beta ranging up to 2.0, it simply means your stocks will move double the rest of the stocks in either direction.
Aggressive stocks are possessed by new entrants in the market generally. They are in the early stages of development and hold a distinctive value proposition. It will require a lot of homework and market research to be done in order to build an aggressive portfolio as being new in the market, their name is not common to the household.
Service and technology are the two industries showing rapid growth. While you go for building up an aggressive portfolio, remember to manage the risk appropriately as high risk may prove fatal is not calculated precisely.
- The Defensive Portfolio
On the contrary to aggressive stocks are defensive stocks. They possess a low beta which means the market correction minimally affect their value. These are the companies which will stay in demand no matter what. Even if the economy is facing a recession, the companies manufacturing household necessities will always be asked for.
If you wish to invest in defensive stocks, watch out for companies which are present in every nook and corner of the country and is a common household name.
These funds are best for risk averse people as they provide an extra cushioning over the risks.
Pharmaceutical and Défense industry are best suited for this category.
- The dividend portfolio
This portfolio focuses on paying out dividends to investors or capital distribution in any form. They are similar to defensive portfolio companies but also pay dividends at regular intervals. They are known to generate positive regular income for the investors. The companies falling under this category are known for returning or paying out a major chunk of their profits to the investors time-to-time. REITs are the budding name under this category.
If you are nearing retirement or need an additional source of income at home, this is your portfolio. They can be substituted to regular income at home and used as an extra hand as well. Look out for funds that have a flexible dividend policy. These companies provide generous capital gains to the investors.
Utility industry is one good call for an income portfolio.
- The Guess-work Portfolio
Yes, you read it right. This portfolio work on speculation and gambling among the stocks. Even more than an aggressive portfolio, the speculative portfolio carries a lot of risk. As per most of the investment advisors, a maximum of 10% of the total investable money can be contributed towards such a fund. IPOs and NPOs can be some of the gambling game portfolio constituents.
This portfolio calls for a lot of research and know-about of the market trends. Which new companies are entering, what competition they have, what is the likelihood of their success and many other such questions need to be answered before investing in them?
They sound lucrative as they promise high return in short period but there are no historical facts the judge that.
A new tech company or a new automobile company could be few of the companies you can watch out for.
- The Mixed Bag
As evident by name, a mixed bag is full of options available to the investor. There can be a combination of stocks, bonds, mutual funds, real estate, art, service etc. the biggest advantage of investing in a mixed portfolio is the flexibility it gives to the investor.
You exercise full control over the time span, the returns, dividends and installments.
You can go for investing in blue-chip fund companies along with a combination of Gilt funds and real estate.
You can create variety in the maturity dates, the mode of receiving corpus and asset allocation.
Knowing about and considering these portfolios can ease out your selection process as per need. Building up a portfolio needs investor’s attention and effort as compared to putting your money in a passive option. There are a lot of other factors which need to be taken into consideration while making this decision. Be well researched or you can take expert advice. Try Piggy Premier
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