It’s a bit like an art collection
When unique art pieces are accumulated in one place, they form a valuable collection. For an art collection to be successful over a long period of time, it should have pieces from various art periods and artists, as trends in the arts tend to shift along with their evaluations. Similarly a “healthy” stock portfolio needs to be diversified, so that the investor can consistently reap its benefits.
What is a financial portfolio?
It’s a nice, diversified collection of financial assets. These can include, but are not bound to bonds, currencies, stocks, and different kinds of funds. Ironically, it can also include other types of assets, like art and real estate. The elements of a portfolio are determined by the risk profile of an investor, as well as the financial goals and time frame the investor has in mind. These will determine the portfolio’s elements and lifespan. A common example would be someone saving for retirement - naturally, a 25 years old will have a different strategy and have more risky investments than a 50 year old. A portfolio’s main objective is to build wealth, and that should be reflected in the portfolio strategy.
The Master of the Portfolio
A portfolio is owned by an investor, but it’s not always managed by an investor. This is true especially with larger portfolios, which tend to be managed by financial professionals. With the democratization of the stock market thanks to the many apps and resources available today, portfolios are easier to both create and manage. It is still incredibly beneficial to carve out some time to understand the stock market and what kind of portfolio one wants to invest in. A personal advice from our CEO is to also consider your values when creating a portfolio. Investments should align with what you believe in, and don’t let anyone tell you otherwise.
Building a portfolio it’s a bit like building a house. It is meant to give you the best possible return in the future, even if it may sound a little expensive at the moment. Portfolio building requires a long-term view of one’s financial objectives, and that’s another reason why it is vital to diversify one’s assets. It is advised to invest roughly in 20-30 stocks in order to have a well diversified stock portfolio. Aside from stocks, investing in precious metals is a great way to further diversify one’s portfolio for the future. These strategies will not make it risk-free, but they will definitely ease one’s vulnerability to changes in the market.
Why will your future self thank you
A stock portfolio it’s all about strategy. Do not, and we repeat, do not, put all your eggs in the same basket. Having a diversified portfolio, especially from a younger age, will allow you to get the most out of the stock market’s ups and downs. Thankfully, there’s apps like Bits of Stock™ which automatically diversify your portfolio by letting one invest in the brands one loves. This also becomes a great opportunity to learn about the stock market’s trends and performances, so that one can make better investment decisions in the future.
- Diversifying a portfolio also means that different assets will perform differently. And that’s okay.
2. The word portfolio comes from the Italian “portafoglio” - which translates to a case to carry papers. Today it just means “wallet”.
3. Nobel Prize worthy: in 1990, Harry Markowitz won the Nobel Prize in Economics for his Modern Portfolio Theory, which claims that an investor should diversify investments over multiple asset classes.