Let's build a portfolio!
Hello, this is Capital Cat! I'll explain the basic concepts of a portfolio and its importance.
1.What a Portfolio Is
A portfolio refers to the collection of assets owned by an investor and can include a variety of assets such as stocks, bonds, real estate, commodities (for example gold and oil), and cash. The purpose of creating a portfolio is to diversify across multiple assets to reduce risk and aim for stable returns.
2.The Importance of Diversified Investing
When constructing a portfolio,diversified investingis extremely important. For example, even if the stock market declines, the bond market may remain stable, helping to limit overall losses. By investing in different asset classes, the goal of diversification is to avoid being heavily affected by the risk of a single market or asset.
Examples of Asset Diversification
- Stocks: High growth potential, but also high risk.
- Bonds: Lower risk than stocks, with more stable returns expected.
- Commodities (e.g., gold): Strong against inflation, tends to rise in price when geopolitical risks increase.
- Real Estate: Long-term growth is anticipated, but liquidity can be a risk.
3.Balancing Risk and Return
When building a portfolio, it is important to balance based on the investor'srisk tolerance. Risk tolerance varies by factors such as the investor's age, investment goals, and economic circumstances. For example, younger investors may allocate more to growth-oriented stocks, while nearing retirement investors may increase the proportion of stable bonds and cash.
4.The Importance of Asset Allocation
Asset allocation has a significant impact on the overall performance of a portfolio. Common approaches to adjusting asset allocation include the following concepts:
- Aggressive (high risk tolerance): Allocate more to high-risk assets such as growth stocks and emerging-market equities.
- Balanced (moderate risk tolerance): Equally allocate across assets with different risk levels, such as stocks, bonds, and cash.
- Defensive (low risk tolerance): Allocate more to safer assets like bonds and cash.
