These days, many market participants choose portfolio investments, hoping that they will earn lucrative returns over a certain period of time. Portfolio investments aren’t the same as direct ones because here investors deal with passive ownership of financial products. In this review, we are going to pay specific attention to these two types of making investments. However, this article will be focused more on portfolio investments and their peculiar advantages.
Single portfolio investment can refer to different assets from several unrelated markets. It can include shares, bonds, real estate investment trusts, different types of funds, and so on. These are traditional choices of portfolio investors. However, some participants can come up with more exotic portfolio investment ideas, such as warrants and futures. Investments into physical objects can also be considered portfolio investments.
Actually, any purchase that is expected to generate financial gains can be considered a portfolio investment, no matter for which period of time an investor is going to hold certain assets.
As a rule, the category of portfolio investments is subdivided into two subcategories:
- Strategic investments. These are deals that refer to purchasing products from the long-term perspective.
- Tactical investments. Following this strategy means that an investor chooses an active approach and expects to receive profits from the short-term perspective.
When composing a portfolio, you can consider different asset classes. When making a choice, the biggest aspect to consider is the readiness to face the risks. Conservative investors, who aim to mitigate the risks, prefer investing in reliable products such as government bonds and blue-chip stocks. They tend to be less volatile and more stable in the long run.
Why are portfolio investments so special?
If you have some money and you want to make more. You should examine the capabilities of the DotBig trading platform. The DotBig offers you two ways – trading or investing. Since this review is dedicated to portfolio invest, we would like to specify its difference compared with direct investments. If you are considering the idea of becoming a DotBig trader, consider this comparison table:
|Portfolio investments||Direct investments|
|Refer to institutional investments made through different types of fundsInvolve buying shares of publicly traded companiesLower risk tolerance thanks to the involvement of mutual/governmental fundsMore time to analyze assets but less time to gain returns from investmentsProvide higher liquidity||Don’t require interaction with a forex brokerMight be bought without intermediary fundsCan be made in non-publicly traded companies and private equity assetsCan involve investing in foreign companies that aren’t included in the domestic stock market|
As you can see from this comparison table, although portfolio investments require paying fees to the DotBig forex broker, they tend to be more stable and more liquid than direct investments. Are there any other particular reasons to make portfolio investments instead of direct ones?
Why investors choose portfolio investments
“If you aren’t willing to own a stock for 10 years, don’t even think about owning it for 10 minutes.”
This is a quote by one of the most successful investors in history, Warren Buffett. Currently, his company, Berkshire Hathaway, holds an investment portfolio worth over $300 billion. Warren Buffett suggests that portfolio investment is a long-term affair that requires patience if you want to succeed, reports CNBC.
Nevertheless, it’s also necessary to take into account that the next five years will be much tougher for investment portfolio managers than the last five. This is the result of the study conducted by the EY Future of Asset Management.
Pros and cons of portfolio investments
- You can decrease the risks. Risk mitigation is one of the biggest advantages of creating an investment portfolio. This point is especially relevant for those investors who know how to diversify their portfolios. We suggest that you should learn how to do this with the DotBig forex broker.
- You can make portfolios highly diversified. This point suggests that if you allocate your capital to different asset classes, you will make your portfolio more diversified and more resilient to risks. For instance, if you have a diversified portfolio, the impact of one declining asset can be eliminated by the growing price of another instrument. Unlike portfolio investments, direct investments cannot be diversified.
- You can follow a systematic approach. One more advantage of portfolio investments is that when composing a portfolio, you can come up with a very structured and systematic approach to investing. This will help to generate bigger gains in the long run.
- You can make passive income. No one can guarantee that the assets added to your portfolio will generate income. However, there is a huge probability that at least several portfolio investments will produce earnings for the portfolio owner.
- You can make more mistakes. Diversification is good but there is still a chance that all the positions in your investment portfolio will be wrong. In such cases, the losses can be massive.
- You might not know how all assets in your portfolio work. Different markets and assets have different rules. When composing a portfolio, you are very likely to add assets that are unknown to you.
- You can spend more on portfolio investment. Last but not least, to receive gains from an investment portfolio, you should be ready to pay more.
Should you make portfolio investments now?
We suggest that making portfolio investments is a good idea now. What you should know is that you shouldn’t enter this game without basic knowledge of the different markets, from which you are going to buy assets. You have a great chance to understand how portfolio investments really work by creating an account with the DotBig forex broker.
- Are portfolio investments good?
Yes, they can be very beneficial in the long run. This is a good way if you want to make some passive income without becoming too exposed to risks.
- How to make portfolio investments?
To make portfolio investments, work with the DotBig company because this broker is safe and reliable. Plus, remember about the diversification of your investment portfolio.
- Is it a good idea to make portfolio investments now?
Yes, these are long-term ventures that turn out profitable if an investor follows all the rules.
Last Updated: December 12, 2022