Different Kinds of Portfolios and Strategies

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A portfolio is the group of assets that you are currently invested in. And just like investors themselves, investment portfolios are not created equal. Different kinds of portfolios offer distinct benefits and require different strategies. Here are some of the most popular types of investment portfolios.

Aggressive Portfolios

Aggressive portfolios hold assets with higher levels of risks (stocks) and aim for the longer and higher returns. Such stocks usually have higher beta, which refers to the degree of correlation in terms of volatility of an asset compared to the broader market.

In a nutshell, the beta tells how the asset will react to a certain movement in the market. The beta coefficient is a part of the Capital Asset Pricing Model, which determines the projected return of an asset by taking into account its beta and the expected return of the market. Higher beta means higher possible returns. Thus, investors use these assets for their portfolios.

Defensive Portfolios

Defensive portfolios follow the conservative concept of portfolio model. This kind of portfolio usually consists of fixed-income securities and stocks that have lower beta coefficient, nearly unaffected by the broader market movements.

Fixed-income securities, as the name suggests, provide fixed and secured payments. And when a company goes out of business, the creditors are the first ones to receive payments should a liquidation takes place.

You may want to curb the effects of surges in inflation by investing in some equities in exchange of some fixed-income security. For a defensive portfolio, this means going after blue-chip stocks that carry lower levels of risks.

Hybrid Portfolios

Hybrid portfolios are more flexible and diversified, usually holding a wider range of assets like commodities, art, real estate, and others. This kind of portfolio prioritizes safety, liquidity, favorable risk/return proportions, and income.

These portfolios usually include blue-chip stocks along with high grade government or corporate bonds that have different maturities. The fixed-income securities in this portfolio and the stocks allocation offset the potential losses in each other thanks to negative correlation. You may also slap in some real estate investment trusts and master limited partnerships in the mix.

Income Portfolios

Income portfolios have the goal of generating cash flow and offer investors with current income via dividends and other types of distribution. This kind of portfolio is generally suitable for retirees and other investors with lower risk tolerance who want to ensure regular income.

The stocks chosen for this type of portfolio are similar to the ones chosen for a defensive portfolio but they usually provide higher yield. Real estate investment trusts and master limited partnerships are the most popular examples of an income producing investment since they generally pay out most of their profits back to shareholders and receive special tax considerations.

Speculative Portfolios

Speculative portfolios have the highest risks among the aforementioned types. The trick in using this kind of portfolio is to bet not more than 10 percent of one’s investable assets on high-risk investments. Among the investments are initial public offerings and the shares of a company speculated to be due for takeover in the near future.

Speculative portfolios also invest in companies in the tech and pharmaceutical sectors that are nearing the creation of a product expected to innovate the field. Get Wibest Broker Forex Education and Wibest Forex Brokers List at their site