Portfolio
Definition
A collection of financial investments such as stocks, bonds, commodities, cash, and cash equivalents held by an individual or institution.
An investment portfolio is the complete collection of financial assets owned by an individual, fund, or institution. A well-constructed portfolio balances risk and return based on the investor's goals, time horizon, and risk tolerance through strategic asset allocation.
Modern portfolio theory, developed by Harry Markowitz, demonstrates that diversification across uncorrelated assets can reduce overall risk without sacrificing expected returns. The efficient frontier represents the set of portfolios offering the highest expected return for each level of risk.
Regular portfolio rebalancing, which involves selling overperforming assets and buying underperforming ones to maintain target allocations, is essential for disciplined investing. This counterintuitive approach systematically enforces buying low and selling high, and most advisors recommend rebalancing annually or when allocations drift beyond a set threshold.
Related Calculators
Related Terms
Asset Allocation
financeAn investment strategy that balances risk and reward by distributing portfolio assets among different categories like stocks, bonds, and cash.
Diversification
financeAn investment strategy that reduces risk by spreading investments across different asset classes, industries, and geographic regions.
Securities
financeTradable financial instruments including stocks, bonds, and options that represent ownership, debt, or the right to buy or sell an underlying asset.
Return on Investment (ROI)
financeA performance measure used to evaluate the profitability of an investment, expressed as a percentage of the original cost.
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