Forex trading

What a novice trader needs to know about portfolio investment

May 12, 2019

A portfolio investor invests money in securities in order to receive passive income from them. However, he does not participate in trading operations , trusting the management of capital to other professionals. He has no goal to form a controlling stake from the number of shares of only one company. Rather, he will invest in securities of different enterprises , thereby forming his portfolio . Hence the name.

Portfolio investor can be:

  • Pension Fund;
  • Insurance Company;
  • investment fund.

What does a portfolio investor have in common with a strategic one?

With strategic investors portfolio makes the goal to buy a share of the company. To do this, they study the state of affairs in the company, determine its value and fair value in order to understand how profitable it is to acquire its securities. Everything is taken into account – both current profit and future earnings. The higher the investor estimates the prospects of this company, the more willing to pay for theshares. If information about the company is too little, then it is less interesting from the point of view of investing.

What are the differences?

Strategic investors actively involved in trading securities and control of working moments. Portfolio prefer to entrust their capital in the hands of proven experts, so that they carry out operations on their behalf.

The ultimate goal of portfolio investors is to earn income from investments and reduce the risk of losing money as much as possible.

In their portfolios there are stocks of several enterprises, the number of which gives them the right to vote in cases of making important decisions.

What makes paper investment attractive in the eyes of investors?

  • how will the stock price change in the foreseeable future;
  • how stable dividends will be paid.

Since we are talking about reliability, it is logical to assume that bonds are considered most popular in the eyes of portfolio investors . The latter, of course, lose in profitability compared to stocks , but they give more stable incomes.

Accordingly, futures and options are less popular because they are associated with a certain degree of risk. The investment portfolio is formed on the basis of the projected yield, risk and type of securities.

What level of risk is chosen by portfolio investors?

In essence, everything related to investments is subject to risks in varying degrees. It should be understood – to work the stock market influenced by economic factors, legislative changes, errors in forecasts and decisions.

Therefore, strategic investors hire professional consultants , as they engage in high-risk investments and bet too much.

The goals of portfolio investors are less ambitious and more careful. They carefully calculate the benefits and risks. Their values ​​are safety and stability.

In accordance with them, a portfolio is formed and certain strategies are applied .

In accordance with the objectives and risks of portfolio investors are divided intothree types:

  • Conservative

His goal is to protect capital from inflation. Therefore, he is looking for tools that have low profitability, but low risk. As a rule, it is a private investor.

  • Moderately aggressive

Prefers to invest in limited amounts for the long term to provide higher returns. To reduce the risk, part of the funds invests in low-yielding and low-risk securities.

  • Aggressive

Risks their capital more than the other two categories. Invests in high-yield and therefore risky securities. Most often, his investments are short-term and are in constant motion.

In any case, the composition of the portfolio is regularly updated. And in order to be effective, a portfolio investor has to delve into such concepts as capital diversification, the nature of various securities, the average return on shares of different companies.

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