In finance, a
portfolio is an appropriate mix of or collection of investments held by an institution or a private individual. In building up an investment portfolio a financial institution will typically conduct its own investment analysis, whilst a private individual may make use of the services of a financial advisor or a financial institution which offers portfolio management services. Holding a portfolio is part of an investment and risk-limiting strategy called diversification. By owning several assets, certain types of risk (in particular specific risk) can be reduced. The assets in the portfolio could include stocks, bonds, options, warrants, gold certificates, real estate, futures contracts, production facilities, or any other item that is expected to retain its value.
 |
It is an almost universally accepted concept that any portfolio should include a mix of investments. These investments could include a mix of stocks, bonds, mutual funds, and other investment vehicles. A portfolio should also be balanced. That is, the portfolio should contain investments with varying levels of risk to help minimize exposure, should one of the portfolio holdings decline significantly.
Many investors make the mistake of putting all their eggs in one basket. Asset allocation is one of the first steps in creating a diversified investment portfolio. Diversification isn`t limited to asset allocation, either. It is also important to own different investments with different levels of volatility, even within an investment class.
