I bet that you have heard of it before. "I have a portfolio of blah blah blah", or "How big is your portfolio?" So... What is this "portfolio" that everyone who is investing/ planning their finances is talking about? Today I shall be tackling this question:
Definition:
A portfolio is a grouping of financial assets such as stocks, bonds, commodities, currencies and cash equivalents, as well as their fund counterparts, including mutual, exchange-traded and closed funds. A portfolio can also consist of non-publicly tradable securities, like real estate, art, and private investments. - Investopedia
A portfolio refers to a collection of investments or financial assets held by an individual, investment company, financial institution or hedge fund. This grouping of financial assets can include everything from gold and property to stocks, bonds, and cash equivalents. In essence, an investment portfolio acts as a big briefcase-carrying all of these financial assets. - Capital
These are the essential points.
1. Group of financial assets (Financial instruments that can be anything that we discussed and more, like real estates, arts, whiskey, etc)
2. Held by an individual, company, funds.
For today, we will be talking about your individual portfolio. As per the definition, your portfolio is a combination of the different financial instruments that you are holding. A portfolio is also something that you should build based on your preferences. It should be in line with your investment beliefs and your risk appetite
Here are some of the things you should consider before setting off to build your portfolio:
1. What is your risk tolerance?
How much gain/loss are you able to tolerate? Are you ok with a portfolio that can give you large returns and losses?
2. What is your time horizon?
A longer time horizon would mean that you can create a portfolio that has a higher potential for appreciations.
3. What assets are you comfortable/ familiar with?
If you are competent and have a lot of experience with a particular financial instrument, you can consider having more of your portfolio allocation to the instrument that you are familiar with.
Here are some of the financial instruments that you can have in your portfolio. We have actually gone through the majority of them in the other Finance 101 articles:
1. Stocks, etfs, mutual funds, index funds, Reits
2. Bonds, bond funds
3. Gold, precious metals
4. Crypto (Bitcoin, ethereum)
5. Real estates
6. Other financial instruments like alcohol, art, etc
7. Commodities like copper, steel, oil
8. Insurance
As we are talking about the personal portfolio, in which I would assume that you do not have the need to invest in commodities, alcohol, art etc. We will focus on 1,2,3,4,5,8 I will analyse it from the POV of a) Aggressive investors (with a long time horizon) b) Conservative investor (with a shorter time horizon) c) Investor who is looking to pass intergenerational wealth d) ultra-aggressive investor
Do note that the allocations are just for example. You should do your own research.
a) Aggressive Investor (For those who wants :
1. Stocks (85% in etf, individual stocks)
2. Bonds (0%)
3. Precious metals (4% in gold)
4. Crypto (1%, treat it as a gamble)
5. Real Estates (5%)
5. Real Estates (5%)
8. Insurance (5%, to protect against sudden events)
b) Conservative Investor (For those who wants to have some returns but cannot take too many losses)
1. Stocks (20% in etfs, and reits etfs)
2. bonds (60% in bond funds)
3. Precious metals (5% in gold)
4. Crypto (0%)
5. Real Estates (5%)
8. Insurance (10%)
c) Generational Wealth Investors (For those who wishes to pass to their offsprings without incurring taxes)
We do not have inheritance tax in Singapore. But do know that if you pass on properties, your offsprings might need to pay property taxes on it, or pay for the maintenance fees.
Hence, you might want to consider holding on to stocks and bonds.
d) Ultra-aggressive Investors (me, with about 30-40 years of investing)
1. Stocks (95% in etf, individual stocks/ reits)
2. Bonds (0%)
3. Precious metals (0%)
4. Crypto (0%)
5. Real Estates (0%)
5. Real Estates (0%)
8. Insurance (5%, to protect against sudden events)
I will reiterate this again. Your portfolio would be reflective of your investment beliefs. Your portfolio should be tailored to your needs. Of course, with a portfolio, you should always look at it every now and then to rebalance it. The rebalancing would allow your portfolio realigned with your chosen allocations. This rebalancing should be around once per 3 months.
As always, do take note that the allocations are just examples, you should always do your own research before making any financial decisions.
Also, now that we have settled a majority of the financial instruments, I will be moving on to the most famous financial portfolios that are held by famous investors like Warren Buffett, Ray Dalios, etc. It will be named "Finance 201". I am an Engineer for goodness sake. How creative do you think I am :') Don't worry. Finance 101 series will still run on, just keep sending in request so that I know to explain some of the basic terms that I have used in my posts
With that,
I end today's topic
Stay vested, Stay frugal my friends,
Dionysius
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