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Portfolio investments – is the investment in financial instruments of different types and kinds, combined in a portfolio. Generally, portfolio investments include securities – stocks and bonds, but in modern practice they also include futures, CFDs, currency pairs, bullions and other instruments.

Portfolio investments do not involve the investor’s participation in the management of the companies issuing securities to be acquired, generating income from their possession,  actual implementation of the deliveries of forward and futures contracts, so that from this point of view, this type of investment can be described as passive. At the same time profits from the investment portfolio are often higher than direct investments in business projects and the risks – are much lower.

Portfolio investments often refer to the financial investment and can be both short-term, medium– or long-term depending on the investor’s objectives.

 

Portfolio investments are a good option for:

  • those who want to use a maximum of investment opportunities in today’s financial markets
  • people focused only on the investment income, who do not plan to participate in the direct invested projects and business
  • holders of both large and small capitals
  • investors who want to minimize risks and to be able to select the optimal investment horizon

 

Advantages of portfolio investments

  1. Thanks to the use of all types of financial instruments, portfolio investments have a theoretically unlimited profit potential.
  2. A well-chosen investment portfolio allows to diversify investments, minimize all kinds of risks, including liquidity and high volatility.
  3. Due to the diversity of financial instruments included in the portfolio, the overall result of the investor’s activity may be positive, even in case of losses on certain assets.
  4. Portfolio investments ensure the flexibility in choice of the investment timeframe and, depending on the market situation, allow to apply the whole range of investment strategies: from conservative to very aggressive.
  5. It is not necessary to have a large initial capital to create a profitable investment portfolio
  6. Assets included in the portfolio, as a rule, have a significantly higher liquidity than the real objects of investment, which, if necessary, opens up the possibility for a quick return of investments.

 

Disadvantages of portfolio investments

 For effective investment portfolio management, you must have at least a minimal knowledge of the financial markets and devote time to instruments’ prices movements’ analysis in the portfolio.

  1. It is almost impossible to become a full owner of the company whose securities are purchased by investors.

 

Portfolio investment instruments

Individuals can carry out transactions in the financial markets independently with the help of brokers or transfer responsibilities for preparation and management of the investment portfolio of professional and specialized organizations. The most handy instruments for this type of portfolio investments are  various investment funds, including mutual funds,  PAMM-accounts and individual trust management with an expert involved

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