14 Dec

Struggling To Make Sense Of Investment Portfolios? Here’s What You Need To Know

December 14, 2020

If you’ve decided to listen to your friends’ advice and look into putting together an investment portfolio for the very first time, you may well be finding yourself swamped by a deluge of buzzwords, graphs and charts, all of which are competing for your attention and your finances. We don’t need to tell you about how important it is to make the right decision when it comes to your money, so instead of rushing to plump for the one that sounds most plausible, let’s break it down and make sense of what you’re looking for.

What Goes Into An Investment Portfolio?
An investment portfolio is made up of different types of assets, all of which have the goal: to create capital growth with the least amount of risk to you, the investor. A typical combination will be made up of stocks (the shares you own in a company which will increase in value as it does), bonds (the return on a loan that will come back with interest) and other types of investment like gold, real estate and oil.

What Is An All Weather Portfolio?

An All Weather Portfolio, or All Seasons Portfolio, is one that is made to weather every kind of weather or season, all the different economic storms and springs that can be thrown up in the course of a year. So, rather than hone in on one area of the market, this portfolio emphasizes diversification to minimize risk. A result of this is that the potential gains may be lower, but if you’re investing at a time of great economic turmoil, this is a very enticing choice. You’d be looking at reasonably sized chunks of stocks and longer term bonds, a smaller chunk of intermediate term bonds, and a small mix of some of your other types of investment.

What Is A Permanent Portfolio?

If the All Weather Portfolio sounded a little too complex, the Permanent Portfolio, as designed by American investment guru Harry Browne, makes things as simple as they get. You’re looking at 25% stocks, 25% short term bonds, 25% long term bonds and 25% commodities. It’s an evenly sliced pie that is created to be as simple as possible and low-risk, the perfectly enticing portfolio for the anxious investor just looking to get their feet wet. Recently, a new spin on the Permanent Portfolio has emerged, the Golden Butterfly Portfolio, which knocks those down to 20% and adds an additional 20% small cap value. It’s a move that is not without risks, and you can read a more detailed break-down of the pros and cons at Optimized Portfolio.

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What If I Don’t Want To Play Defense?

If all this is sounding a little too much like you’re putting your money in a savings account, there are other portfolio types you can look at that carry greater chances of reward in exchange for greater risk. A speculative portfolio can be very profitable if somewhat dicey, as you could make moves like investing in a company that’s rumored to be in takeover talks or companies on the verge of breaking out big. An aggressive portfolio places stocks first and looks for companies that are growing fast, and often makes big investments in the tech sector. For this, you’re going to need to keep on your toes and follow the markets with an eagle eye.

By Taylor Wilman

 


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