What is a Portfolio of Financial Assets?

A portfolio of financial assets is a collection of investments which includes stocks, bonds, commodities, cash, and cash equivalents, as well as their fund counterparts. A portfolio can be created and maintained with any type and combination of investments, based on an investor’s risk profile, investment goals, and timeline.

The concept of portfolio diversification is an important element of building and managing a portfolio. This means that investments are spread across different asset classes, industries, and geographic regions to reduce risk, while potentially improving returns. For example, a portfolio may contain assets such as Growth Stocks, Large-Cap Value Stocks, Small-Cap Stock, International Stocks, and Bonds.

Diversification is a strategy for minimizing risk. This is because stock prices fluctuate based on factors such as economic trends, currency exchange rates, international events, or political instability -- all of which can have a major impact on stock prices. If an investor has a diversified portfolio, the impact of a decline in one asset may be offset by increases in another.

In addition to stock and bond investments, a portfolio can also include types of investments such as precious metals, commodities, real estate, and even art collectibles. While these assets can have great potential for long-term growth and appreciation, they also come with higher levels of risk, so investors should be aware of this risk and maintain appropriate asset allocations that address their personal goals and risk tolerance levels.

Creating and managing a portfolio with a variety of investments can be a very challenging task. Even with a diversified portfolio, it’s important to monitor asset performance and stay abreast of market developments in order to make timely decisions and adjust accordingly. This is why portfolio management is an important skill for the successful investor -- and why many people turn to the services of a professional money manager or financial advisor when putting together their investment portfolios.