According to Investopedia, a portfolio is a collection of financial investments like stocks, bonds, commodities, cash, and cash equivalents, and property. The mix of these instruments based on their risk-return profile can be categorized as being conservative, moderate, or aggressive. If your more conservative in your portfolio, the more stable your returns will be, while a portfolio that’s more aggressive experiences more turbulent returns with higher returns, but potentially lower returns.
In this piece, we shall look at the various categorizations of portfolios, their returns over the past 5 years, and how to determine which portfolio best suites you.
Conservative Portfolio
A conservative portfolio is one that aims to preserve capital rather than maximize returns. This type of investor has a low-risk tolerance and will rather have stable returns than high risky returns. Liquidity is also a very high priority for such an investor and they would rather stick to a short time horizon for their investments.
This portfolio contains cash and cash equivalents, and treasury bills and bonds. The Bromide Conservative Portfolio is shown below;
Moderate Portfolio
A moderate portfolio is one that aims to preserve capital but is willing to invest in riskier assets in order to supplement the return. Liquidity is still a high priority, but so is returned.
To have this balance of liquidity and return more than 60% of the capital is in cash and cash equivalents, and treasury bills and bonds, while the rest is invested in large-capitalization stocks, corporate bonds and property. The Bromide Moderate Portfolio is shown below;
Aggressive Portfolio
An aggressive portfolio aims to maximize the return of the portfolio. The Investor is willing to accept market fluctuations as they are confident of their investments. Since liquidity is low in such a portfolio, the investor should have a long time horizon.
To achieve this over 60% of the capital is in large-capitalization stocks, corporate bonds, private equity and property, while the rest is in cash and cash equivalents, and treasury bills and bonds. The Bromide Aggressive Portfolio is shown below;
Returns
The above table highlights the average annual return one stands to gain from the various portfolios, based on historical and current data.
Investor Profile
In order to know which portfolio to adopt, you have to understand the investor profile behind each portfolio. Once you know this, reflect on yourself to determine which profile fits well with you.
Moderate Portfolio Investor Profile
Low-risk tolerance
Short Time Horizon (High Liquidity Needs)
Prefer steady returns and capital preservation
Moderate Portfolio Investor Profile
Moderate risk tolerance
Medium Time Horizon (Medium Liquidity Needs)
Prefer stable return and Capital preservation but wants to supplement their returns.
Aggressive Portfolio Investor Profile
High risk tolerance
Long Time Horizon (Low Liquidity Needs)
Prefer high returns
On our resources page, we have a toll which can help you track your investments alongside the portfolio of your choice. Check it out.
Investments are risky and require the advice of a registered financial advisor. This article is meant to educate and is not by any means a recommendation of investment strategy. Information compiled here has been obtained from reliable sources, but should not be a guarantee.
Bromide helps entrepreneurs and small business set their businesses up for success. Get the technical advice you need to start, grow, and maintain your business today. Check our website and reach out at discoverthebromide@gmail.com.
Comments