Investments have assumed premier importance in the overall economic sphere, be it of a country, a business organization or an individual. With the development and enhancement of the economic sector, several new investment instruments have been added to the earlier set of investment options, thereby providing a whole range of investment options for the investor. This multitude of investment alternatives has given rise to yet another facet of investment, known as investment portfolio.

Folio Facts:

When an investor holds stocks, shares, mutual funds and other securities of various companies and organizations, it is referred to as the investment portfolio of the investor. The definition of investment portfolio also considers the holding of various assets by the individual. Investment portfolio is a term used when an investor holds an aggregate of investments like securities and real estate investments. All investment experts advise investors to diversify their investments and not invest in only one type of investment. Hence, investors must distribute their funds equally among various securities as well as in property investment. The investment portfolio of an investor reflects the various investments undertaken by the investor.

Investment Portfolio Rationale:

Having a well-defined investment portfolio is assuming increasing importance with every passing day. Hence, it is important for the investors to understand the rational behind investment portfolio and some other fundamental aspects of it. It can be explained in the following way:

1) Investment portfolio emphasizes on the fact that all investment decisions made by the investor are governed by the element of risk involved in every investment. This means that if an investor has two investment options before him that guarantee equal returns, and then the investor would invest in the one, which has relatively less risk.

2) Hence, it implies that an investor would select that portfolio that has low risks than the one that has higher risks.

3) Investment portfolio also states that the investor is not really concerned about the distribution of investment returns and is indifferent to its skew ness.

4) The fundamental principle of investment portfolio is diversification of risks by holding diverse assets. This implies that an investor can get better investment returns with relatively lower risk with diversified asset holdings.

5) investment portfolio takes into consideration the element of risk-free asset. As the name suggests, risk-free assets refer to those investment instruments that involve zero risk on the part of the investor. Such instruments are normally non-existent and the term can only be applicable to short-term government bonds and other government securities. These are risk-free assets because they do not have factor of variance, which makes them completely safe and secure.

6) An investment advisor emphasizes on having a profile of the investor that has a perfect combination of risky and risk-free assets. The ideal combination can help significantly in increasing the leverage of the portfolio of the investor.

7) Positive investment portfolio refers to the position in which an investor gets higher returns for same amount of risk while negative portfolio refers to the condition in which investor gets lower returns for a relatively higher risk.

8) Investment portfolio also explains the fact that an investor would always invest in assets that guarantee returns higher than their current investment returns. Investors would always look to widen his capital stock, which is possible only when he always raises the investment bar.

These are the basic principles or fundamentals that govern the investment portfolio system for an individual or small investor.

Investment Portfolio Strategies:

There are different strategies that govern the investing portfolio nature or system for an investor. These strategies are bound to help the investor in organizing and managing investment portfolio in an extremely precise manner. The major strategies are as follows:

1) Active Portfolio Strategy: Active portfolio strategy refers to investments made by the investors on the basis of available information. In this, investors make investments on the basis of the predictions and prediction techniques to maximize their returns. The active portfolio has some important types in it that are described as follows:

• Patient Portfolio: Patient portfolio refers to holding of stocks of eminent and established companies and business corporations. When investors invest in such companies they are guaranteed of getting dividends and are usually long-term investment avenues. When investors invest have a patient portfolio, it implies that they have invested in companies that are bound to grow and would provide the expected returns irrespective of the market conditions.

• Aggressive Portfolio: Aggressive portfolios are exactly contrary to patient portfolios. In this investors invest in new or small companies that seem promising and have an impressive start. Hence, investors can expect greater returns but with higher risks. In this portfolio, the investor can earn huge profits or equivalently suffer huge losses as the company is in its transient phase.

• Conservative Portfolio: The conservative portfolio is a combination of the patient and the aggressive portfolios. In this, investors can hold a combination of stocks of established companies as well as those of new and up-coming companies. This way, investors can accomplish both the aims of achieving greater returns along with steady growth.

2) Passive Portfolio Strategy: Passive portfolio strategy refers to investments made on the basis of diversification principle instead of relying on market condition or on market predictions.

Importance of Portfolio Management:

Portfolio management or investment management is crucial for individual investors as well as for investment companies and corporations. Portfolio management helps the investors and companies achieving their particular investment targets. For the investors, the goal is to achieve higher profits and widening of capital stock. Investment management or portfolio management includes organization of all the securities as well as real estate management. Apart from this, investment management or portfolio management also includes services like in-depth financial analysis, precise asset and stock selection; plan implementation along with accurate and proper monitoring of investments. Hence, portfolio managers advise the investors in making the right investments in the right properties and securities and maintaining the right combination of the various investment instruments. Hence, with proper investment portfolios, investors can be rest assured that their investment returns are maximized to the maximum extent.