About 41% of Americans are intimidated by their finances, and investing becomes an even bigger hurdle to conquer
When it comes to investing, there are so many options that it’s hard for most people to figure out where to put their money. When money is hard to come by, you want to make sure that you have one of the best types of investment portfolios.
Now, if you’re among the 55% of Americans who aren’t investing, we need to change that. In this guide, we’ll discuss the five different types of investment portfolios you should consider. Keep reading so you can make an informed decision about the most suitable portfolio for yourself.
The Aggressive Investment Portfolio
A smart investor knows that there are many reasons for diversifying one’s portfolio. Diversification is an easy way to spread out risk or the amount of money lost if a stock suddenly drops. One smart strategy is the aggressive investment portfolio.
Aggressive investing involves taking on a high volume of risk in an attempt to yield higher returns. The strategies involved with this type of investment are often referred to as creative, innovative, and even radical. These types of investments aim for as much as double or triple-digit returns that can be generated within short periods of time.
An aggressive investment portfolio seeks to generate high returns through the use of risky financial instruments such as derivatives, futures contracts, and options. As a smart investor, you can employ these methods, but be ready to experience a great deal of volatility. This strategy is most effective when the market is rising, and it can be difficult to predict market fluctuations.
While many investors steer clear from this type of investment, others have had great success with it. This makes it essential to have a strong knowledge base before taking on the challenge of aggressive investing. This is one of the top types of investment portfolios, but it’s most suitable for younger people and those with a very high-risk tolerance.
The Defensive Investment Portfolio
A defensive investment is any type of investment that will not lose money in down markets. This type of investment has low returns but also low volatility. It protects the smart investor from a negative financial outcome, such as losing their job or having expenses that cannot be covered.
Defensive investors follow long-term trends. These include index funds, which are made up of many different stocks that can act as a single unit. By following trends, defensive investors believe that all companies will be successful in the future to some degree, even if profitability is hard to find right now.
Defensive investors also put their money into blue-chip stocks that have been around for a long time, proving themselves in good and bad economic climates. Even though this portfolio may not make a lot of money, it can still lose value due to inflation over the years. To counter this, as a smart investor, you can choose an all-in-one fund that contains bonds.
Bonds are IOUs that pay lenders back with interest until the bond is paid off. These types of funds will help offset some of the losses caused by inflation. However, they also have more risk than other forms of investing because their value can fluctuate on a daily basis based on supply and demand for the bond in question.
If you want to play it safe with your investments, there are many ways to do so. Defensive investing is one of the best types of investment portfolios if you need safety and security in your portfolio without huge returns.
Income Investment Portfolio
This is by far one of the best types of investment portfolios and for very good reasons. You see, the main idea is that you want something stable but yielding, like companies with a dividend payout. It is within these companies that you’ll find stability and income.
The income investment portfolio is broadly diversified, not only in securities but also in foreign currency and short-term investments. A large share of the portfolio may be made up of government bonds, treasury bills, and other fixed-income instruments.
Bonds are a means to diversify, as they have a return that depends on interest rates which in turn depend on inflation and economic growth. As a result, it is very important that you diversify this asset class.
You can also invest in things like REITs and MLPs. The income investment portfolio is a good way to diversify in a world where high returns in one instrument or in one country are compensated by low returns elsewhere. Adding another asset class can have a positive effect on the return of your entire portfolio.
Speculative Investment Portfolio
If you haven’t heard of speculative investing before, it’s when somebody invests in something that they think will go up in value but isn’t a sure thing. There is always a good chance that this kind of activity might end up in a loss rather than a gain. This makes them some of the riskiest types of investment portfolios.
There are all kinds of speculative investments that you can take part in. Some common ones include cryptocurrency, property development, commodity trading, and start-up corporations. If you want to do smart investing, conduct thorough research to make sure you understand what it is that you’re buying into before making a commitment.
There are plenty of people out there who have made quite the profit by being involved in speculation. However, it is always important to remember that it is a high-risk activity. There is no telling for sure if you will end up making any money.
Hybrid Investment Portfolio
A hybrid investment portfolio contains a mixture of various investments. You could mix bonds, real estate, futures, commodities, stocks, and even art.
Having a combination of investments can offer strong returns with low volatility. The best part is, the risk is lower with more investments. Some major downsides to investing in a hybrid index are taxes and fees.
Every investment has some level of risk. Still, the reward could far outweigh the drawbacks when considering how much you can earn with a lower amount of risk. You can also venture into private equity by joining a private equity platform.
Different Types of Investment Portfolios You Need To Know
Are you currently looking to invest and need a solid investment portfolio? If so, these are the different types of investment portfolios you may consider. Choose one that works best for you and your risk tolerance.
Do thorough research on each one before you commit so you can maximize your investments. That said, please check out our website for more valuable content.