PortfolioBack to Glossary
Taken from the Italian ‘portafoglio’, meaning a case for carrying papers, in finance a portfolio is simply a collection of different assets owned by an investor. These can include assets like bonds, stocks, precious metals, cryptocurrency and cash, but can also comprise less liquid assets like real estate, art and antiques. It’s considered sound investing to have a diversified portfolio, composed of assets that do not all move in the same direction. For instance, holding gold is a hedge against the US dollar as they tend to be inversely correlated, meaning that when one goes up, the other goes down. These kinds of inverse correlations are important to an investment portfolio because they ensure that parts of your portfolio are protected or even gaining in value when others are going down. Risk tolerance is the key factor determining what types of assets an investor includes in their portfolio. An investor who is risk-averse will prefer to invest in less volatile assets like index funds, whereas a risk-tolerant investor will gravitate to more volatile assets like individual stocks or even cryptocurrencies. Your portfolio is simply the various assets that your capital is divided between. For instance, let’s say you own a property, some gold, a few stocks and hold bank accounts denominated in both euros and US dollars. This would mean that your portfolio is divided between real estate, precious metals, equities and FX. Portfolio diversification is the be all end all for serious investors as ideally a portfolio should be populated with assets that are non-correlated or negatively correlated. This is so that a downturn in one market doesn’t cause all of your assets to also drop in value.
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