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The formation of investment portfolio

An investment portfolio is a set of investments in some financial objects (in accordance with an investment strategy), which will provide maximum profitability in case of minimum risk.

The main purpose of an investment portfolio is to get an optimal result in the scope of the realization of a developed investment policy through the selection of the most reliable and profitable investments. A portfolio is comprised of various types of investment assets.

The classification of types of investment:

  • by the degree of materialization: non-material and material;
  • by maturity of investment: short-term, medium-term and long-term;
  • by the profitability: high-yield, middle-income and unprofitable investments (investment of the capital in social and environmental projects, which do not seek profit);
  • by the characteristic of participation in investments: direct investments (investor directly takes part in the selection of investee), indirect investments ( investment funds, advisors, mutual funds and others determine the investee);
  • by the degree of risk: high-risk, medium-risk, low-risk and risk-free investments;
  • by type of an investee: real (the purchase of real capital), financial (investment in stocks, bonds and other securities), speculative (the purchase of assets (currency pairs, precious metals, stocks, etc.) exceptionally for making profit through the possible changes of their prices in future);
  • by the level of liquidity: highly liquid (in a short period of time they may be converted into cash), averagely liquid (they may be converted into cash from 1 to 6 months), low liquid (they may be converted into cash from 6 months), nonliquid (they cannot be realized on their own, but only as a part of а property)

In the process of his activity, the investor faces difficulties regarding the choice of an investee with various characteristics. Most of them assume formation of a certain set of investees, in other words - creation of a portfolio. There are numerous instruments which form an investment portfolio, but the main ones are: stocks, bonds, gold, currencies and real estate.

The stages of the formation of an investment portfolio

  • Determination of the investment policy and type of the portfolio.
  • Determination of the strategy of portfolio management.
  • Analysis of assets and formation of a portfolio. The general criteria for including assets in an investment portfolio are the ratios of their profitability, risk and liquidity.
  • Evaluating the effectiveness of a portfolio in terms of comparing the factually obtained profitability and risk.
  • Audit of a portfolio in order not to make its content contradict the already changed economic situation, the investment quality of securities and the goals of an investor.

By the method of generating profit and by the level of risk, investment portfolios are divided into the following types: conservative, moderate and aggressive.

  • Conservative portfolio is a moderately risky and, therefore, less profitable portfolio consisting of short-term loans, bonds and other instruments with a minimum risk.
  • Aggressive portfolio is a highly risky and a highly profitable portfolio, which consists mainly of stocks. These kind of portfolios are generally managed by investors, who are ready to take risks and who are psychologically resistant to large fluctuations.
  • Moderate portfolio is a balanced portfolio and, as a rule, it is comprised of both high-yield and low-income, but at the same time reliable assets.

The main task of the portfolio investment is to get from the set of investment assets such characteristics, which are unattainable in case of investing funds in a separately taken object. The ultimate goal of creating a portfolio is to achieve more optimal combination of risk and profitability. The risk is mostly reduced, when different non-related assets are included in a portfolio. In other words, the diversification should lead to week decrease of the overall portfolio value, when the value of any asset sharply falls.

Portfolio trading in financial markets

With the development of personal composite instruments PCI (GeWorko Method), there appeared a convenient opportunity of trading portfolios of variety of assets in the financial markets instead of trading separately taken instruments. Through this technology portfolio trading is realized on the basis of two portfolios similar to the trading of separately taken financial instruments, when one asset (base portfolio) serves as the base part, and the other asset (quote portfolio) serves as the quoted part. In addition, a trader gets the opportunity of trading his own unique instruments, which are resistant to market volatility, forecasting the optimal combinations of profitability and risk and analyzing the behavior of his instruments on the basis of historical data. Portfolio trading through this technology is possible only on the professional trading platform NetTradeX.

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