Investment portfolio, formation of an investment portfolio. How is an investment portfolio formed and what is portfolio investment?
Portfolio investments are investments in a combination of various securities for the purpose of preserving and making a profit. The collection of securities constitutes a portfolio. It is the investment portfolio that allows you to obtain such characteristics by combining various securities that cannot be obtained by investing in individual financial instruments. Portfolio assets include government and municipal bonds, promissory notes, shares, as well as bonds of credit and financial companies.
Portfolio investing involves passively owning a portfolio in order to profit from rising prices of securities or accrued dividends, without participating in the activities of enterprises issuing securities. This distinguishes portfolio investment from direct investment, when the owner of a block of shares actively participates in the management of the enterprise.
In world practice, to classify investments as direct investments, the criterion of 10% or more ownership of shares (shares in the authorized capital of the issuer) is accepted. Portfolio investment means owning less than 10% of shares.
Portfolio investment is the investment of available funds in a variety of securities from several market segments. Investing in securities of several companies allows investors to reduce the risk of losing their funds. Portfolio investing implies that the investor owns a fairly large amount of money, which he is ready to turn into investment capital.
The main task of portfolio investment is to impart to a set of securities such investment characteristics that are unattainable from the position of an individual security, and are possible only with their combination. In the process of portfolio formation, a new investment quality with specified characteristics is achieved. Thus, a securities portfolio is the instrument with which the investor is provided with the required stability of income with minimal risk.
Portfolio investments are an object for continuous monitoring of the liquidity, profitability and safety of the securities included in the portfolio, in conditions of constantly changing market conditions. For these purposes, various methods are used to analyze the state of the stock market and the investment qualities of securities of individual issuers.
In a developed stock market, a portfolio of securities is an independent product, and it is its sale in whole or in shares that satisfies the needs of investors when investing in the stock market. Typically, the market sells some investment quality with a given Risk/Return ratio, which can be improved through portfolio management.
Principles of investment portfolio formation
The contents of the investment portfolio may change, that is, some securities may replace others. Since most often, an investor invests his funds in various enterprises and projects in order to provide himself with a real and stable income from investments. There are certain principles for forming a securities portfolio:
- investment security;
- stability of income generation;
- liquidity of investments.
Security refers to the invulnerability of portfolio investments from shocks in the investment capital market. Security usually comes at the expense of profitability and investment growth. The main goal in forming a portfolio is to select investment-attractive securities that provide the required level of profitability and risk.
The liquidity of investment assets is their ability to quickly and without loss in price turn into cash.
It is impossible to find a security that is both highly profitable, highly reliable and highly liquid. Each individual paper can have a maximum of two of these qualities. Therefore, a compromise is inevitable. When investing in a portfolio, it is necessary to determine the proportions between securities with different properties. The main principles for constructing a classic conservative (low-risk) portfolio are: the principle of conservatism, the principle of diversification and the principle of sufficient liquidity.
The principle of conservatism. The ratio between highly reliable and risky shares is maintained in such a way that possible losses from the risky share are overwhelmingly covered by income from reliable assets. The investment risk, therefore, does not consist in losing part of the principal amount, but only in receiving an insufficiently high income.
Diversification of investments is the basic principle of portfolio investment. Its meaning is that you do not need to invest all your money in one paper, no matter how profitable this investment may seem. Diversification reduces risk due to the fact that possible low income on some securities will be offset by high income on other securities. Risk minimization is achieved by including in the securities portfolio a wide range of industries that are not closely related to each other. The optimal value is from 8 to 20 different types of securities.
The principle of sufficient liquidity is to maintain the share of quick-selling assets in the portfolio at least at a level sufficient to carry out unexpected high-yield transactions and meet clients' cash needs. Practice shows that it is more profitable to keep a certain part of the funds in more liquid (even if less profitable) securities, but to be able to quickly respond to changes in market conditions and individual profitable offers.
Purpose of portfolio investment
The main goal when creating a portfolio is to achieve the most optimal combination between risk and return for the investor. In other words, the appropriate set of investment instruments is designed to reduce the investor’s risk to a minimum and at the same time increase his income to the maximum.
The purpose of portfolio investment is to invest investors' funds in securities of the most efficiently operating enterprises, as well as in securities issued by state and local authorities in order to obtain maximum income on invested funds.
Portfolio investing has the goal of making a profit as a result of an increase in the value of purchased securities, as well as receiving interest income that they provide.
CLASSIFICATION OF PORTFOLIO INVESTMENTS
There are various options for portfolio investments, but there are two main ones. They differ in the way they generate income.
In the first option, income is received due to the increase in the price of securities. Such a portfolio is called a growth portfolio. Since the interest payments in this case are small, the bet is made on the growth rate of the market value of the securities. Growth rates are different and, accordingly, portfolios are divided into: conservative, aggressive and moderate.
In a conservative portfolio, most of the securities are bonds (reduce risk), a smaller part are shares of reliable and large Russian enterprises (provide profitability) and bank deposits. For example: stocks - 20%, bonds - 50% and short-term securities - 10%. A conservative strategy is optimal for short-term investing and is a good alternative to bank deposits.
An aggressive investment portfolio consists of high-yield stocks, but also includes bonds for the purpose of diversification and risk reduction. For example: stocks - 70%, bonds - 20% and short-term securities - 10%. The aggressive strategy is best suited for long-term investing, since such investments for a short period of time are very risky. But over a period of 5 years or more, investing in stocks gives very good results.
A moderate investment portfolio includes corporate shares and government and corporate bonds. Typically, the share of stocks is slightly higher than the share of bonds. For example: stocks - 45%, bonds 35% and short-term securities - 20%. Sometimes a small part of the funds may be invested in bank deposits. The moderate strategy is optimal for medium-term investing.
In the second option, profit is ensured by fairly large dividends from securities. This type of portfolio is commonly called an income portfolio. It is guided by a conservative investor, since minimal risk with a fairly stable income is obvious.
There are also different combinations of growth and income portfolios. Such a combined portfolio is capable of providing its owner with a profit in the event of both an increase in interest rates on securities and in the event of receiving dividends from the activities of the enterprise, and even in the event of a collapse of one type of securities, the latter will provide the investor with sufficient stability.
PORTFOLIO INVESTMENT MANAGEMENT
Investment portfolio management is understood as a set of methods that provide:
- preservation of initially invested funds;
- achieving the highest possible level of profitability;
- reducing the level of risk.
As a rule, there are two ways to manage portfolio investments: active and passive.
Active management involves the systematic observation and rapid acquisition of securities that meet the investment objectives of the portfolio, as well as the rapid study of its composition and structure. This method of management involves significant financial costs associated with information, analytical, expert and trading activities in the stock market. Such costs can only be borne by large banks and financial companies that have a large portfolio of securities and strive to obtain maximum income from professional activities in the stock market.
Passive management involves the formation of highly diversified portfolios with a pre-fixed level of risk, designed for a long period of time. This management method is rational only for a portfolio consisting of low-risk securities that must be long-term so that the portfolio exists unchanged for a long time. This makes it possible to realize in practice the main advantage of passive management - a small amount of overhead costs compared to active monitoring. A similar approach is possible for a developed stock market with a relatively stable environment. In conditions of general economic instability and high inflation rates, passive monitoring is ineffective.
All operations related to portfolio investment can be carried out independently. People who understand the many intricacies of the market and are capable of analyzing a large amount of information are successful investors. However, not everyone has the desire to delve into the peculiarities of the functioning of the financial market. For beginners, the preferred method is portfolio investing using an investment fund. The advantages of this method are:
- ease of investment portfolio management and lower maintenance costs;
- diversification of portfolio investments and, accordingly, reducing investment risks;
- higher income from investment and minimization of costs due to the fund’s economies of scale;
- reduction of intermediate taxation - income received from portfolio investment remains in the fund and increases the investor’s assets without additional payment of income tax. All tax obligations of the investor occur upon receipt of distributions from the fund.
Portfolio investments have greater liquidity. In the event of unfavorable conditions, an investor almost always has the opportunity to exit the market by selling securities. As a rule, this is what happens. Mass withdrawal of investors from portfolio investments often leads to stock market crises.
The main advantage of portfolio investing is the ability to select a portfolio to solve specific investment problems. To do this, various portfolios of securities are used, each of which will have its own balance between the existing risk acceptable to the portfolio owner and the expected return (income) in a certain period of time. The relationship between these factors allows us to determine the type of securities portfolio. The type of a portfolio is its investment characteristics based on the ratio of income and risk.
The main portfolio investors are individuals, banking and other financial organizations, and investment funds. Among capital investors, this type of investment is considered the most promising, since it combines such important advantages as legal protection and high liquidity, which allows you to quickly convert securities into currency.
RISKS OF PORTFOLIO INVESTMENTS
Risks associated with the formation and management of a securities portfolio are usually divided into two types: systematic and unsystematic.
Systematic risk is caused by general market reasons - the macroeconomic situation in the country, the level of business activity in financial markets. Its main components are:
1. The risk of financial losses from investments in securities due to changes in their market value caused by changes in legislative norms (risk of legislative changes).
2. Inflation risk – a decrease in the purchasing power of the ruble leads to a drop in incentives to invest. World experience confirms that high inflation destroys the securities market.
3. Interest rate risk - losses that investors may incur due to changes in interest rates on the credit market. An increase in bank interest rates leads to a decrease in the market value of securities. With a low increase in interest rates on deposit accounts, a massive dumping of securities issued at lower interest rates may begin. These securities, according to the terms of the issue, can be returned to the issuer ahead of schedule.
4. Political risk.
5. Currency risks of portfolio investments are associated with investments in foreign currency securities and are caused by changes in the exchange rate of foreign currency. Investor losses arise due to the appreciation of the national currency against foreign currencies.
Unsystematic – risk associated with a specific security. This type of risk can be reduced through diversification, which is why it is called diversifiable. It includes such components as:
1. Selective – the risk of incorrectly selecting securities for investment due to an inadequate assessment of their investment qualities.
2. Time risk – the risk of buying or selling securities at the wrong time, which inevitably entails losses for the investor. For example, seasonal fluctuations in securities of trading and agricultural processing enterprises.
3. Liquidity risk – arises due to difficulties in selling portfolio securities at an adequate price.
4. Credit risk is inherent in debt securities and is caused by the likelihood that the issuer is unable to meet obligations to pay interest and the face value of the debt.
5. Call risk – is associated with the possible conditions of a bond issue, when the issuer has the right to call (repurchase) bonds from their owner before maturity.
6. Enterprise risk – depends on the financial condition of the enterprise – the issuer of securities.
7. Operational risk is caused by malfunctions in the operation of computer networks for processing information related to securities, low qualifications of technical personnel, disruption of technology, and so on.
If the portfolio contains from 8 to 20 different securities, the risk will be significantly reduced, although a further increase in the number of securities will no longer have such an impact on it.
International Portfolio Investments
The main and most significant advantage of international portfolio investments is the ability to independently choose the country for investment. More than 90% of foreign portfolio investments are made between developed countries and are growing at a rate significantly faster than direct investment. The main reason for making international portfolio investments is the desire to place capital in the country and in such securities in which it will bring maximum profit at an acceptable level of risk.
Conclusion
Portfolio investments are becoming increasingly popular, although they are short-term in nature. This is due not only to the ability to quickly sell an investment portfolio in the event of an unfavorable economic situation, but also to the easy process of monitoring and managing this type of investment.
The attractiveness of portfolio investments is also due to the fact that with the right approach to investment, you can get a percentage of income that is many times higher than the interest on a bank deposit. At the same time, the risks of deposits and portfolio investments are almost identical.
For an investor, the main task is to make a profit, but how to maintain a position when every investment contains risk for the most part up to 100%?
Even with 100% risk, investors have found a way to reduce it to 1-5% by creating an investment portfolio. Needless to say, one of the first rules of an investor is not to put all your eggs in one basket?
Even if you find an attractive project, business or other investment option, immediately look for support - several more investment options.
If you have 10 different investments in your portfolio, then even if you lose two, the remaining eight will cover your losses and bring you profit.
If you decide to invest, then you need to create an investment portfolio.
Where to start creating an investment portfolio
The essence of an investment portfolio is risk (distribution). If you have selected several investment options for yourself, then it is advisable to distribute capital proportionally.
Example :
You have 7 projects in your portfolio, in one of them you have invested 70% of the total portfolio. And it was this project that you trusted the most that brought a loss. The remaining 6 projects (30%) will not be able to quickly restore the initial balance of the portfolio.
The only exceptions to the proportionality of investments are highly profitable and high-risk projects, in which it is really better to invest a smaller amount. Such investments allow you to bring large profits, but in case of loss you will quickly recover, since your contribution will not be significant relative to the entire portfolio.
The portfolio itself may contain investments of various types - trust management, real estate, metals, art, and so on. Ideally, your portfolio should be as diversified as possible, but based on the centuries of experience of the world's renowned investors, it is better to focus only on those investments that you understand and have the ability to independently control.
Note that: One of the popular ways to invest on the Internet is trust management in a PAMM account. They differ in that you can monitor your investments at all times.
How to create an investment portfolio
Like any other investment, PAMM accounts require diversification. The more of them you have in your portfolio, the safer your investment will be.
Many sources write about the types of portfolios, dividing them into conservative and aggressive. I have already lost the line between these concepts, since every investment is designed to make a profit, and therefore has good reasons. The grounds themselves cannot be conservative or aggressive, since any business either brings money or not.
Speaking of risks, they are the same everywhere. If you are Bank of America, then yes, the risks that the bank will stop working or slow down are simply negligible, but the fact that the dollar may fall, the bank may be fined, the interest rate may rise - this is a 100% risk. In general, this applies to any investment in any industry.
Therefore, if we talk about conservative and aggressive PAMM accounts, it is very difficult to see the line between them, except perhaps in extremes, when the average account brings 3-6% per month, and the aggressive one 249% in the same period. But such aggressive accounts work for a maximum of 2 months.
Since the task of any portfolio is to reduce risks in order to obtain stable profits, you should choose only from reliable ones:
- work period of at least 6 months;
- profit must be stable within certain limits, for example, from 3 to 5%;
- the larger the balance, the better, this means the trader knows how to manage big money and has responsibility.
Additionally, you can contact the manager and ask him about trading strategy and trading risks, his age, education and work schedule.
You need to build your portfolio gradually, not all at once. If you find one PAMM account, invest in it, look for another one tomorrow. Thus, in a few months you can assemble an impressive portfolio, investing not your own money, but the profit received from your first investment. In order to diversify/secure your portfolio, you can invest with different brokers.
The investment portfolio allows you to achieve the optimal balance of income and risk. If you prefer to invest your savings in PAMM accounts, then in your case it may look like a set of accounts that can differ significantly in trading strategy, profitability and riskiness. At the same time, the investor has the right to independently determine in what proportions each individual account will be represented in the portfolio, depending on the desired strategy. A serious drawback of a truly flexible and attractive portfolio, which limits its accessibility to novice investors, is the need for them to have a very large amount of money to create it. But you can limit yourself to a small number of accounts in one portfolio to begin with.
If you ask yourself how many PAMM accounts should be in a portfolio, then the answer is quite obvious - as many as possible.
This will compensate for a significant decrease in the profitability of one of the accounts, even if it drops by 50-60%. form investment portfolios from a large number of PAMM accounts of several brokerage companies at once. But the cost of such a portfolio can exceed several thousand dollars, which, as already mentioned, makes it not accessible to every investor.
Money makes money
In this case, I recommend systematic portfolio creation. In the first month you invest in 2 accounts, in the second month in 2 more, in the third month 2 more, and in the fourth month you invest money only from the profit from the initial investment. This way, over time, you will invest the money you have already earned from investments. A striking example of how money makes money.
The portfolio should include accounts whose managers use various stock trading strategies: aggressive, conservative and balanced.
Conservative accounts will not bring investors excessive profits. Their average profitability is unlikely to exceed 3-5% per month, but this is compensated by their relatively high reliability.
Aggressive accounts They allow you to get very high profits of 30-70% per month or more, but you have to pay for it with their high risk. Their drawdowns can be very significant, so a trader can take quite a long time to make up for losses. Also, it is among aggressive traders that leaks are most common. Therefore, despite the high profitability in some months, the profitability of such accounts at the end of the year may turn out to be comparable to conservative or even unprofitable. You need to invest a small part of your portfolio in aggressive accounts and choose a manager carefully.
You can separately highlight balanced accounts, whose managers try to adhere to a strategy that can be considered somewhere between conservative and aggressive. This allows you to receive income up to 10-15% per month with a lower level of risks.
- It is recommended to allocate a significant portion of the investment portfolio to conservative accounts. In this case, the stable income from them will be able to cover the drawdowns on aggressive accounts, allowing you to avoid significant losses.
Having formed an investment portfolio once, you should not forget about it for a long time. It is necessary to constantly review its composition in order to timely exclude unprofitable accounts from it and include new ones with attractive characteristics.
In addition to all this, always look around - since you are already an investor, continue to look for other opportunities, be it shares, or investments in building a garage.
How to manage an investment portfolio
In the case of PAMM accounts, there is no clear answer. On the one hand, you can simply log in once a month and withdraw your accumulated profits, exclude unprofitable accounts, and add new ones.
On the other hand, you can monitor managers’ transactions in the middle of the week and decide every weekend what to do next with each PAMM account.
If someone’s account has a drawdown, this is not a sign that it needs to be closed urgently; not a single trader in the world trades without drawdowns. In such cases, you just need to try to understand why there was a drawdown and what are the further actions of the PAMM account manager. If this was a desperate, high-risk trade, showing that in a difficult situation the trader is letting everything take its course, it’s worth thinking about. But if it was just a working moment, since the market is changeable and not always predictable, then it’s worth waiting for the manager to make successful transactions and become profitable again.
Who to invest in and who not to invest in should always be decided only by the investor himself, but
Portfolio investment
(Portfolio investment)
Portfolio is a collection of securities owned by one investor, invested in business activities in order to generate income.
Definition, classification and types of portfolio investments, risks associated with portfolio investments, the role of international portfolio investments in the development of the Russian economy
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Portfolio investment is, definition
Portfolio investments are investments in securities for the purpose of subsequent gambling on a change in exchange rate or receiving a dividend, as well as participation in the management of a business entity. Portfolio investment do not allow the investor to establish an effective one over the enterprise and do not indicate the presence of investor long-term interest in development enterprises.
The portfolio is a certain set of corporate shares, bonds with varying degrees of collateral and risk, as well as securities with a fixed benefit guaranteed by the state, i.e. with minimal risk losses on principal and current income. Theoretically, a portfolio can consist of securities of one type, and also change its structure by replacing some securities with others. However, each security alone cannot achieve such a result. The main objective of portfolio investment is to improve investment conditions by giving the aggregate valuable papers such investment characteristics that are unattainable from the perspective of a single security and are possible only with their combination.
In the most general terms investments are defined as cash, bank deposits, shares and other securities invested in businesses or other types of activities in order to generate income and achieve a positive social effect.
By financial definition portfolio investment represent all types of funds invested in economic activities in order to obtain income.
Portfolio investment allows you to plan, evaluate, and control the final results of all investment activities in various segments of the stock market.
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Thus, the securities portfolio is the instrument with which investor the required stability is ensured income with minimal risk.
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None of the investment values has all the properties listed above. Therefore, a compromise is inevitable. If reliable, it will be low, since those who prefer reliability will offer high price and they'll shoot you down profitability.
The main goal when forming a portfolio is to achieve the most optimal combination between risk and profit for the investor. In other words, the appropriate set of investment instruments is designed to reduce the investor’s risk to a minimum and at the same time increase his income to the maximum.
The main question when managing a portfolio is how to determine the proportions between securities with different properties. Thus, the main principles for constructing a classic conservative (low-risk) portfolio are: the principle of conservatism, the principle of diversification and the principle of sufficient liquidity.
Portfolio investment is
When forming a portfolio, you should be guided by:
Security of investments (invulnerability from events on market capital);
- Liquidity investment (ability to convert into cash money or product).
Portfolio investment is
None of the investment values fully possesses such properties. If the security is reliable, then profitability will be low, since those who prefer reliability will offer high price and bring down profitability. The main goal when forming is to achieve a compromise between risk and profit for the investor.
Regular income investment portfolio
A regular income portfolio is formed from highly reliable securities and brings average income with a minimum level of risk. A portfolio of income securities consists of high-yield corporate bonds, securities that generate high income with an average level of risk.
The formation of this type of portfolio is carried out in order to avoid possible losses in the stock market, both from a fall in market value and from low dividend or interest payments. One part of the financial assets included in this portfolio brings the owner an increase in capital value, and the other - income. The loss of one part can be compensated by the increase of another.
Types of investment portfolios
The type of investment portfolio depends on the relationship between two main indicators: the level of risk that the investor is willing to bear and the level of desired return on investment.
Portfolio investment is
The investment portfolio by type is divided into:
Portfolio investment is
Moderate investment portfolio;
Aggressive investment portfolio.
Portfolio investment is
Conservative investment portfolio
In a conservative portfolio, the distribution of securities usually occurs as follows: a large part is bonds (reduce risk), a smaller part is shares of reliable and large Russian enterprises (provide profitability) and bank deposits. A conservative investment strategy is optimal for short-term investing and is a good alternative to bank deposits, since on average bond mutual funds show an annual return of 11 - 15% per annum.
Moderate investment portfolio
A moderate investment portfolio includes:
Shares of enterprises;
Government and corporate bonds.
Typically, the proportion of stocks in a portfolio is slightly higher than the proportion of bonds. Sometimes a small portion of the funds may be invested in bank deposits. A moderate investment strategy is optimal for short- and medium-term investing.
Aggressive investment portfolio
An aggressive investment portfolio consists of high-yielding stocks, but also includes bonds for diversification and risk reduction purposes. An aggressive investment strategy is best for long-term investing, as such investments for a short period of time are very risky. But over a period of time of 5 years or more, investing in shares gives very good results (some mutual funds of shares have demonstrated a return of more than 900% over 5 years!).
Formation and profitability of the investment portfolio
portfolio profitability. The expected return of a portfolio is understood as the weighted average of the expected returns of the securities included in the portfolio. In this case, the “weight” of each security is determined by the relative amount of money allocated by the investor to purchase this security.
Portfolio risk is explained not only by the individual risk of each individual security in the portfolio, but also by the fact that there is a risk that changes in the observed annual returns of one stock will affect changes in the returns of other stocks included in the investment portfolio.
The key to solving the problem of choosing the optimal portfolio lies in the theorem about the existence of an efficient set of portfolios, the so-called efficiency frontier. The essence of the theorem comes down to the fact that any investor must choose from the entire infinite set of portfolios a portfolio that:
Provides maximum expected return at each risk level;
Provides minimum risk for each value of expected return.
The set of portfolios that minimize the level of risk for each expected return form the so-called efficient frontier. An efficient portfolio is a portfolio that provides minimal risk for a given arithmetic average level of return and maximum return for a given level of risk.
To compile an investment portfolio you need:
Formulating the main goal and determining priorities (maximizing profitability, minimizing risk, preserving and increasing capital);
Selection of investment attractive securities that provide the required level of profitability and risk;
Search for an adequate ratio of types and types of securities in the portfolio to achieve the set goals;
Monitoring the investment portfolio as its main parameters change;
Principles for forming an investment portfolio:
Ensuring security (insurance against all kinds of risks and stability in income generation);
Portfolio investment is
Achieving a return acceptable to the investor;
Achieving an optimal balance between profitability and risk, including through portfolio diversification.
Formation and control portfolio in order to obtain high regular income. The best way to achieve this goal is to simply buy reliable and relatively high-yielding bonds and hold them until maturity.
There are a number of ways to construct portfolios that solve the problem of accumulating a given amount of money, including by assigning the amounts received to specific payments and through immunization.
Portfolio prescription is a strategy in which the investor's goal is to create a portfolio of bonds with an income pattern that completely or nearly completely matches the structure of the upcoming payments.
The portfolio is considered immunized if one or more of the following conditions are met:
The actual annual geometric average return for the entire planned investment must be at least not lower than the yield to maturity that was during the formation of the portfolio;
The accumulated amount received by the investor at the end of the holding period is at least no less than what he would have received had he placed the initial investment amount in bank at a percentage equal to the initial yield to maturity of the portfolio, and investing all intermediate coupon payments at the rate of interest to maturity;
Portfolio investment is
The present value of the portfolio and its duration are equal to the present value and duration of those mandatory payments for which the portfolio was created.
The simplest way to immunize a portfolio is to purchase zero-coupon bonds whose maturity is equal to the scheduled period and whose total par value at maturity matches the investor's goal.
Formation and control portfolio in order to increase the total return. Usually, two possible strategies for increasing the total return are considered:
portfolio transformation based on a forecast of future interest rate changes.
Ways to make portfolio investments
Portfolio investing can be carried out personally - this requires the investor to constantly monitor the composition of his own portfolio, its level of profitability, etc. A more preferable way is portfolio investing using an investment fund. The advantages of such portfolio investment:
Ease of investment portfolio management and lower maintenance costs;
Diversification of portfolio investments and, accordingly, reducing investment risks;
Higher investment returns and cost minimization due to fund economies of scale;
- Decline intermediate taxation - income received from portfolio investment remains in the fund and increases the investor’s assets without additional payment of income tax. All tax obligations of the investor occur upon receipt of distributions from the fund.
When choosing a way to profitably invest his money, the investor, of course, pursues the main goal - to ensure the future of his family, quickly receive large profits or guarantee the safety of his funds without any claims to high income.
What kind of investment portfolio can there be?
Portfolio investment is
The portfolio must be:
Firstly, it can be highly profitable (we mean high returns on current investments);
Secondly, the portfolio can be with an average benefit (this is a more reliable type of investment with constant profit);
Thirdly, the investment portfolio can be mixed, that is, combined (an excellent way to reduce your risks and invest money in the securities of several companies that differ in both the level of profitability and the degree of riskiness).
The main advantage of such investment is the ability for the investor to choose the country for investment, where optimal income will be provided, with minimal risks.
However, no matter what form of portfolio investment you choose, you are unlikely to be able to manage without a highly qualified consultant in this matter. The better you prepare and calculate all the nuances of investing, the more likely your financial success is.
This investment can also be used as a means of protection against inflation.
When forming portfolio investments, investors make decisions taking into account only two factors: expected return and risk. The risk associated with investing in any risky financial instrument can be divided into two types:
Systematic;
Portfolio investment is
Unsystematic.
Systematic risk of portfolio investments
Systematic risk is caused by general market and economic changes that affect all investment instruments and are not unique to a particular asset.
Systematic risk cannot be reduced, but the market impact on financial asset returns can be measured. As a measure of systematic risk, the beta indicator is used, which characterizes the sensitivity of a financial asset to changes in market returns. Knowing its value, it is possible to quantify the amount of risk associated with price changes in the entire market as a whole. The higher this value for a stock, the more it grows when the overall market rises, but vice versa - they fall more when the market as a whole falls.
Systematic risk is caused by general market reasons - the macroeconomic situation in the country, the level of business activity in financial markets. The main components of systematic risk are:
The risk of legislative changes is the risk of financial losses from investments in securities due to changes in their market value caused by changes in legislative norms.
decline the purchasing power of the ruble leads to a fall in incentives to invest;
Inflation risk arises due to the fact that at high rates inflation the income investors receive from securities is provided at a faster rate than it will increase in the near future. World experience confirms that high inflation destroys securities.
Portfolio investment is
Interest rate risk - losses of investors due to changes in interest rates on the market;
Interest rate risk is the losses that investors may incur due to changes in interest rates on the credit market. Banking growth interest rate leads to a decrease in the market value of securities. With a low increase in interest rates on deposit accounts, a massive dumping of securities issued at lower interest rates may begin. These securities, according to the terms of the cash issue, can be returned to the issuer ahead of schedule.
Structural and financial risk is a risk that depends on the ratio of own and borrowed funds in the structure of the financial resources of the issuing enterprise.
The higher the share of borrowed funds, the higher the risk of shareholders being left without dividends. Structural and financial risks are associated with transactions in the financial market and production and economic activities of the enterprise - issuer and include: credit risk, interest rate risk, currency risk, risk of lost financial profit.
Portfolio investment is
Portfolio investment is
Currency risks of portfolio investments are associated with investments in foreign currency securities and are caused by changes in foreign currency exchange rates. Investor losses arise due to an increase in national currency in relation to foreign currencies.
Unsystematic risk of portfolio investments
Reducing unsystematic risk can be achieved by compiling a diversified portfolio from a sufficiently large number of assets. Based on the analysis of the performance of individual assets, it is possible to assess the profitability and risk of investment portfolios made up of them. In this case, it does not matter what investment strategy the portfolio is oriented towards, be it a market-following strategy, rotation of industry sectors, bullish or bearish play. Risks associated with the formation and management of a securities portfolio are usually divided into two types.
The unsystematic risk associated with a particular security. This type of risk can be reduced through diversification, which is why it is called diversifiable. It includes such components as:
Selective - the risk of incorrect selection of securities for investment due to an inadequate assessment of the investment qualities of the securities;
Selective risk - the risk of loss of income due to the wrong choice of a particular security issuer when forming a portfolio of securities. This risk is associated with assessing the investment qualities of a security.
Temporary risk - associated with untimely purchase or sale of a security;
Time risk - the risk of buying or sales securities at the wrong time, which inevitably entails losses for the investor. For example, seasonal fluctuations in securities of trading and agricultural processing enterprises.
Liquidity risk - arises due to difficulties in selling portfolio securities at an adequate price;
Liquidity risk is associated with the possibility of losses when selling securities due to changes in their quality. This type of risk is widespread in the stock market. Russian Federation when securities are sold at a rate lower than their actual value. Therefore, the investor refuses to see them as reliable product.
Credit risk is inherent in debt securities and is caused by probability that it turns out to be unable to fulfill obligations to pay interest and par debt;
Credit risk or business risk occurs in a situation where the issuer of debt (interest-bearing) securities is unable to pay interest or principal on them. debt. The credit risk of the issuing corporation requires attention from both financial intermediaries and investors. The financial position of the issuer is often determined by the ratio between borrowed and equity funds in the liabilities side of the balance sheet (financial independence ratio). The higher the share of borrowed funds in passive balance, the higher probability for shareholders to remain without dividends, since a significant part of the income will go away jar as interest on a loan. In case of bankruptcy such corporations most of the proceeds from sales assets will be used to pay off debt borrowers- banks.
Recall risk - related to possible conditions issue of securities bonds, when the issuer has the right to call (repurchase) bonds from their owner before maturity. Enterprise risk - depends on the financial condition of the enterprise - the issuer of securities;
With call risk, possible losses for the investor if the issuer calls its bonds from the stock market due to the excess of the fixed level of income on them over the current market interest.
The risk of delivery of securities under futures is associated with a possible failure to fulfill obligations on a timely basis. delivery securities held by the seller (especially when conducting speculative transactions with securities), i.e., during short sales.
Operational risk - arises due to disruptions in the operation of systems involved in the securities market.
Operational risk is caused by problems in work computer networks processing information related to securities, low qualifications of technical personnel, violation of technology, etc.
Methods for reducing the risk of portfolio investment management
The design of a particular portfolio may achieve different goals, for example, providing the highest return for a given level of risk or, conversely, providing the lowest risk for a given level of return.
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However, since portfolio investors are engaged in more or less long-term investments and manage quite a large amount of capital, in the conditions of our economy the most likely task is to minimize risk while maintaining a stable level of income.
The higher the risks in the securities market, the more demands are placed on the portfolio manager regarding the quality of portfolio management. This problem is especially relevant if the securities market is volatile. Management means the application to a set of different types of securities of certain methods and technological capabilities that allow: to preserve the initially invested funds; reach the maximum level of income; ensure the investment focus of the portfolio. In other words, process management is aimed at preserving the basic investment quality of the portfolio and those properties that would correspond to the interests of its holder.
From the point of view of portfolio investment strategies, the following pattern can be formulated. The type of portfolio also corresponds to the type of investment strategy chosen: active, aimed at maximizing the use of market opportunities, or passive.
The first and one of the most expensive, labor-intensive elements of management is monitoring, which is a continuous detailed analysis of the stock exchange, its development trends, sectors of the stock market, and the investment qualities of securities. The ultimate goal of monitoring is to select securities that have investment properties appropriate for a given type of portfolio. Monitoring is the basis of both active and passive management methods.
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To reduce the level of risk, there are usually two management methods:
Active management;
Passive control.
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Active investment portfolio management model
Active management is management that is associated with constantly monitoring the securities market, acquiring the most effective securities, and getting rid of low-yielding securities as quickly as possible. This type involves a fairly rapid change in the composition of the investment portfolio.
The active management model involves careful monitoring and immediate acquisition of instruments that meet the investment objectives of the portfolio, as well as rapid changes in the composition of the equity instruments included in the portfolio.
The domestic stock market is characterized by sharp changes in quotes, dynamic processes, and a high level of risk. All this allows us to assume that his condition is adequate to an active monitoring model, which makes portfolio management effective.
Monitoring is the basis for predicting the amount of possible income from investment funds and intensifying transactions with securities.
Manager An active manager must be able to track and acquire the best-performing securities and dispose of underperforming assets as quickly as possible.
At the same time, it is important to prevent a decrease in the value of the portfolio and loss of its investment properties, and therefore, it is necessary to compare the cost, profitability, risk and other investment characteristics of the “new” portfolio (that is, take into account newly acquired securities and sold low-yield ones) with similar characteristics of the existing “old” » portfolio.
This method requires significant financial expenses, since it is associated with information, analytical expert and trading activity in the securities market, in which it is necessary to use a wide base of expert assessments and conduct independent analysis, carry out forecasts the state of the securities market and the economy as a whole.
This is affordable only for large banks or financial companies that have a large portfolio of investment securities and strive to obtain maximum income from professional work On the market.
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Passive model of investment portfolio management
Passive management involves the creation of well-diversified portfolios with a predetermined level of risk, designed for the long term.
This approach is possible if the market is sufficiently efficient and saturated with good quality securities. The duration of the portfolio's existence presupposes the stability of processes in the stock market.
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In conditions of inflation, and, consequently, the existence of mainly a market for short-term securities, as well as unstable market conditions For the stock exchange, this approach seems ineffective: passive management is effective only in relation to a portfolio consisting of low-risk securities, and there are few of them on the domestic market. Securities must be long-term in order for the portfolio to exist in an unchanged state for a long time. This will allow you to realize the main advantage of passive management - low level of overhead costs for goods. The dynamism of the Russian market does not allow the portfolio to have a low turnover, since the loss of not only income, but also value is large.
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An example of a passive strategy would be an even distribution of investments between money issues of varying urgency (the “ladder” method). Using the portfolio ladder method manager buys securities of various maturities with distribution by maturity until the end of the portfolio's lifespan. It should be borne in mind that a securities portfolio is a product that is bought and sold on the stock market, and therefore, the issue of the costs of its formation and management is very important. Therefore, the question of the quantitative composition of the portfolio is of particular importance.
Passive management is the management of an investment portfolio that leads to the formation of a diversified portfolio and its preservation over a long period of time.
If there are 8-20 different securities in the portfolio, the risk will be significantly reduced, although a further increase in the number of securities will no longer have such an impact on it. A necessary condition for diversification is a low level of correlation (ideally - negative correlation) between changes in security quotes. For example, purchasing shares of RAO UES Russian Federation" and Mosenergo are unlikely to be effective diversification, since the shares of these companies are closely related to each other and behave approximately the same.
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There is a way to minimize risk through “risk hedging.”
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Risk hedging- this is a form of price and profit insurance when making futures transactions, when salesman() simultaneously purchases (sells) the corresponding number of futures contracts.
Risk hedging makes it possible for businessmen to insure themselves against possible losses by the time the transaction is liquidated for a period of time, provides increased flexibility and efficiency of commercial transactions, and reduces the costs of financing trade in real goods. risk allows you to reduce the risk of the parties: losses from changes in product prices are compensated by gains on futures.
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The essence of risk hedging is the purchase of forward futures contracts or options (opening a forward position) economically related to the content of your investment portfolio. In this case, profits from transactions with futures contracts should fully or partially compensate for losses from the fall in the price of securities in your portfolio.
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One of the methods of hedging portfolio risk is the acquisition of financial instruments (assets) with returns opposite to existing investments in the same market. A clear example of hedging the risk of financial instruments on a futures exchange is the purchase of futures and options contracts. On the foreign exchange stock exchange it looks like this. If the investor has currency for sale, then either the sale of part of the available currency is carried out at a more favorable rate with its further acquisition when its price falls, or an additional currency is purchased at a low price for its further sale at a higher price. Risk hedging always involves costs, as additional investments must be made to reduce risks.
International Portfolio Investments
Foreign portfolio investment is the investment of investors' funds in securities of the most profitable enterprises, as well as in securities issued by state and local authorities in order to obtain maximum income on invested funds.
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A foreign investor does not actively participate in the management of the enterprise, takes the position of a “third-party observer” in relation to the enterprise - the investment object and, as a rule, does not interfere in its management, being content with receiving dividends.
The main motive for international portfolio investment is the desire to invest capital in the country and in such securities in which it will bring maximum profit for an acceptable level of risk. Portfolio investments are sometimes seen as a means of protecting funds from inflation and generating speculative income.
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The goal of a portfolio investor is to obtain a high rate of profit and reduce risk by hedging risk. Thus, the creation of new assets does not occur with this investment. However, portfolio investments allow you to increase the amount of capital attracted to the enterprise.
Such investments are predominantly based on private entrepreneurial capital, although governments often purchase foreign securities.
More than 90% of foreign portfolio investments are made between developed countries and are growing at a rate significantly faster than direct investment. The outflow of portfolio investment by developing countries is very unstable, and in some years there was even a net outflow of portfolio investment from developing countries. International organizations are also actively purchasing foreign securities.
Intermediaries in foreign portfolio investments are mainly investment banks, through which investors gain access to the national market of another country.
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The international portfolio investment market is significantly larger in volume than the international direct investment market. However, it is significantly smaller than the total domestic portfolio investment market of developed countries.
Thus, foreign portfolio investments are investments of capital in foreign securities that do not give the investor the right to real control over the investment object. These securities can be either equity securities, certifying the property right of their owner, or debt securities, certifying a loan relationship. The main reason for making portfolio investments is the desire to place capital in the country and in such securities in which it will bring maximum profit at an acceptable level of risk.
International portfolio investments are classified as they appear in the balance of payments. They are divided into investments:
In stock securities - a monetary document traded on the market certifying the property right of the owner of the document in relation to the person who issued this document;
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Debt securities are a marketable monetary document that certifies the loan relationship of the owner of the document in relation to the person who issued this document.
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Shareholder securities
Thus, international diversification of investments into stocks and bonds simultaneously offers an even better return-risk ratio than either one alone, as evidenced by many empirical studies. In general, optimal international asset allocation increases investment returns without the investor taking over greater risk. However, there is enormous opportunity in constructing the optimal portfolio to generate higher risk-adjusted returns.
In the modern world, as barriers to international capital flows are lowered (or even removed, as in developed countries), and the latest communications and processing technologies data provide low-cost information on foreign securities, international investing contains a very high potential for simultaneous extraction of profitability and management of financial risks. Passive international portfolios (which are based on market capitalization weights published by many world-renowned financial publications) improve risk-adjusted returns, but an active strategy to construct an optimal portfolio has the potential to give the professional investor much more. In the latter case, the investment strategy bases the portfolio proportions of domestic and foreign investments on the expected benefits and their correlations with a common portfolio.
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Debt securities
Debt securities are a marketable monetary document that certifies the credit relationship of the owner of the document in relation to the person who issued this document. Debt securities can be in the form of:
Bonds, promissory notes, promissory notes - monetary instruments that give their holder an unconditional right to a guaranteed fixed monetary approach or to a variable monetary income determined by agreement;
Money market instruments are monetary instruments that give their holder an unconditional right to a guaranteed fixed cash income on a certain date. These instruments are sold on the market at a discount, the amount of which depends on the size interest rate and the time remaining until maturity. These include treasury bills, certificates of deposit, bankers' acceptances, etc.;
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Financial derivatives - derivative monetary instruments with a market price that satisfy the owner’s right to sell or purchase primary securities. These include options, futures, warrants, and swaps.
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For the purpose of accounting for the international movement of portfolio investments in balance of payments The following definitions are accepted:
Note/debt receipt - short-term monetary instrument (3-6 months), issued creditor in its own name under an agreement with the bank guaranteeing its placement on the market and the acquisition of unsold notes, the provision of reserve loans;
- Option- a contract giving to the buyer the right to buy or sell a specified security or product at a fixed price after a specified time or on a specified date. Buyer pays his bonus to the seller in return for his obligation to exercise the above right;
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At the same time, the share of portfolio investments attributable to small and medium-sized Russian enterprises is quite low. This is due to the high risks of investing in such companies, which significantly complicates their attraction of foreign investment
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Attracting foreign portfolio investment is also a critical task for the Russian economy. With the help of funds from foreign portfolio investors, it is possible to solve the following economic problems:
Replenishing the equity capital of Russian enterprises for the purpose of long-term development by placing shares of Russian joint-stock companies among foreign portfolio investors;
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Accumulation of borrowed funds by Russian enterprises for the implementation of specific projects by placing debt securities of Russian issuers among portfolio investors;
Replenishment of the federal and local budgets of the constituent entities of Russia by placing among foreign investors debt securities issued by the relevant authorities authorities;
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Effective restructuring of Russia's external debt by converting it into government debt. bonds with their subsequent placement among foreign investors.
The main flows of foreign portfolio investments attracted to the Russian Federation are:
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Investments of portfolio investors in shares and bonds of Russian joint-stock companies, freely traded on the Russian and foreign securities markets;
Investments of foreign portfolio investors in foreign and domestic debt obligations of Russia, as well as securities issued by federal subjects;
Portfolio investment in real estate.
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Problems of optimal achievement of investment goals
The Russian market is still characterized by negative features that prevent the application of the principles of portfolio investment, which to a certain extent restrains the interest of market participants in these issues.
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First of all, it should be noted that it is impossible to maintain normal statistical series for most financial instruments, that is, the lack of historical statistical base, which leads to the impossibility of using classical Western methods, and indeed any strictly quantitative methods of analysis and forecasting, in modern Russian conditions.
The next general problem is the problem of internal organizations those structures involved in portfolio management. As experience in communicating with our clients, especially regional ones, shows, even in many fairly large banks the problem of ongoing monitoring of their own portfolio (not to mention management) has still not been resolved. In such conditions, it is impossible to talk about any more or less long-term planning for the development of the bank as a whole.
Although it should be noted that recently many banks have created departments and even portfolio investment departments, this has not yet become the norm, and as a result, individual divisions of banks do not understand the general concept, which leads to reluctance, and in some cases, to loss of the ability to effectively manage both a portfolio of assets and liabilities bank and client portfolio.
Regardless of the chosen level of forecasting and analysis, in order to set the task of forming a portfolio, a clear description of the parameters of each financial market instrument separately and the entire portfolio as a whole is necessary (that is, a precise definition of concepts such as profitability and reliability of individual types of financial assets, as well as specific instructions how to calculate the profitability and reliability of the entire portfolio based on these parameters). Thus, it is necessary to define profitability and reliability, as well as predict their dynamics in the near future.
In this case, two approaches are possible: heuristic - based on approximate forecast dynamics of each type of asset and analysis of the portfolio structure, and statistical- based on constructing the probability distribution of profitability of each instrument separately and the entire portfolio as a whole.
The second approach practically solves the problem of forecasting and formalizing the concepts of risk and profitability, however, the degree of realism of the forecast and the probability of error in drawing up the probability distribution are strongly dependent on the statistical completeness of the information, as well as the market’s exposure to changes in macro parameters.
After describing the formal parameters of the portfolio and its components, it is necessary to describe all possible models of portfolio formation, determined by the input parameters specified by the client and the consultant.
The models used may have various modifications depending on the client’s task. The client can create both a fixed-term and an open-ended portfolio.
Term securities, as you can guess from their name, have a certain validity period or, as economists say, a “lifespan”, after which either dividends are paid or the security is cancelled, depending on its type. At the same time, fixed-term securities are divided into three subtypes: short-term, medium-term and long-term. Short-term securities are a type of securities whose validity period is limited to 1 year; medium-term ones have a “lifespan” of five or ten years, while long-term ones have a “lifespan” of approximately 20 to 30 years.
Perpetual securities are the most common type of securities, which traditionally exist in documentary “paper” form. Perpetual securities have no restrictions on the period of their circulation, since it is not regulated by anything. These securities exist “forever” or until they are redeemed. At the same time, the repayment period itself is also not regulated upon issue.
At the same time, economic development around the world has led to the fact that even perpetual securities began to be issued in book-entry form, that is, exclusively in the form of a register of owners. Such a solution sometimes significantly simplifies the system of control over the circulation of securities.
The portfolio can be replenished or withdrawn.
Portfolio replenishment is understood as an opportunity within the framework of an existing agreements increase the monetary expression of the portfolio due to external sources that are not a consequence of the increase in the initially invested aggregate of the money supply.
Portfolio revocability is the ability, within the framework of a valid agreement, to withdraw part of the funds from the portfolio. Replenishment and recall can be regular or irregular. The portfolio is replenished regularly if there is a schedule for the receipt of additional funds approved by the parties. Model modifications can also be determined by risk restrictions specified by the client.
It is also appropriate to introduce a restriction on the liquidity of the portfolio (it is introduced in the event that the client has an urgent need to dissolve the entire portfolio, unforeseen in the contract). Liquidity level is defined as the number of days required for full conversion all portfolio assets into cash and transferring them to the client’s account.
The next block of problems is directly related to solving optimization problems. It is necessary to decide on the main optimization criterion in the portfolio formation procedure. As a rule, only profitability and risk (or several types of risks) can act as target functions (criteria), and all other parameters are used as restrictions.
When forming a portfolio, three main formulations of the optimization problem are possible:
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- objective function - profitability (the rest is in restrictions);
- objective function - reliability (the rest is limited);
- two-dimensional optimization according to the parameters “reliability-profitability” with subsequent study of the optimal set of solutions.
It often happens that a small decrease in the value of one criterion can be sacrificed for the sake of a significant increase in the value of another (with one-dimensional optimization there are no such possibilities). Naturally, multidimensional optimization requires the use of more complex mathematical apparatus, but the problem of choosing mathematical methods for solving optimization problems is a topic for a separate discussion.
Sources and links
ru.wikipedia.org - Wikipedia, The Free Encyclopedia
finic.ru - Finance and loan
Legal Encyclopedia More details, V. R. Evstigneev. The monograph examines various strategies of portfolio investors in the developed (American) and developing domestic stock market. The author shows that the specifics of the developing...
Investment portfolio is a set of various types of securities with varying degrees of profitability, liquidity and duration, owned by a single investor and managed as a single entity. In a broad sense, a portfolio can include not only securities and fund shares, but also other assets, such as real estate, investment projects, precious metals, inventory items and others. In this article, I will place more emphasis on how to build a portfolio of securities for a private investor.
Formation of an investment portfolio
Drawing up a high-quality portfolio with a high degree of reliability or profitability is not complete without the following steps:
Determination of investment goals (depending on them we choose the type of portfolio)
Depending on the goals, determines the investment strategy
We analyze and select the most suitable financial instruments
We analyze and change the structure if necessary
The goals can be both certain material objects (an apartment, a cottage, a new car) and the level of passive income (for example, the desire to receive 50,000 rubles of passive income upon retirement in 20 years). If we are talking about a legal organization, for example, an enterprise or a bank, then the goal may be financial stability.
In this case, it is necessary to take into account such indicators as the client’s age, his financial situation, attitude to risk, etc.
Types of investment portfolios
Depending on the investment strategy, the following types of portfolios are distinguished:
Conservative – aimed at obtaining guaranteed profitability with high reliability of financial instruments. Includes mainly government bonds and bonds of large reliable companies, and to a lesser extent - shares of these companies.
Moderate - aimed at the optimal balance of profitability and risks, includes securities of large and medium-sized companies with a long history, derivative financial instruments are possible (up to 10%).
Aggressive – a high-yield portfolio with a high degree of risk. Consists primarily of equities and, to a lesser extent, derivatives.
The return on the asset portfolio here increases from conservative (about 5-7% per annum) to aggressive (from 20% per annum).
Types of investment portfolios
Another classification divides asset portfolios into types such as:
Growth portfolio – compiled based on active capital growth. This may include shares of young, promising companies.
Income portfolio - composed of assets that generate significant current income in the form of dividend profit and coupon payments. This primarily includes shares and bonds of large fuel and energy companies.
Balanced – analogous to a moderate portfolio (see above)
Liquidity portfolios – the goal is to select the most liquid instruments with a quick return on investment
Conservative – see above
Specialized – consists of futures and options
Regional and industry - includes securities of local or private enterprises or joint stock companies working in the same field
Portfolio of foreign securities
Table 1. Types of investment portfolios
Portfolio type |
Investor type |
Investment goals |
Risk level |
Type of securities |
Conservative (reliable, but brings little income) |
Conservative investor (values investment reliability over profitability) |
Achieving a return higher than on bank deposits, protection from inflation |
The portfolio consists primarily of government securities, shares and bonds of large and stable companies |
|
Moderate (characterized by an average degree of profitability with moderate risk) |
Moderate investor (trying to maintain a reasonable balance between risk and return, showing cautious initiative) |
Long-term investing to increase capital |
A small share of the portfolio is occupied by government securities, the overwhelming majority - by securities of large and medium-sized stable companies |
|
Aggressive (risky, but capable of generating high returns) |
Aggressive investor (classic speculator, ready to take risks for high returns, quick to make decisions) |
Possibility of rapid growth of invested funds |
The portfolio consists mainly of high-yield, “undervalued” shares of small but promising companies, venture capital companies, etc. |
So, in conservative portfolio the distribution of securities usually occurs as follows: the majority are bonds (reduce risk), the smaller part are stock reliable and large Russian enterprises (provide profitability) and bank deposits. A conservative investment strategy is optimal for short-term investing and is a good alternative to bank deposits, since on average bond mutual funds show an annual return of 11 - 15% per annum.
Moderate investment portfolio includes shares of enterprises and government and corporate bonds. Typically, the proportion of stocks in a portfolio is slightly higher than the proportion of bonds. Sometimes a small portion of the funds may be invested in bank deposits. A moderate investment strategy is optimal for short- and medium-term investing.
Aggressive investment portfolio consists of high-yield stocks, but also includes bonds for diversification and risk reduction purposes. An aggressive investment strategy is best for long-term investing, as such investments for a short period of time are very risky. But over a period of time of 5 years or more, investing in shares gives very good results (some mutual funds of shares have demonstrated a return of more than 900% over 5 years!).
38.Portfolio l of securities: profitability and portfolio risk.
Securities portfolio- is a collection valuable papers belonging to a legal or natural person.
Assessing the risk and profitability of an investment portfolio is one of the main tasks that a management company faces at all stages of investment activity. As a rule, an investment portfolio includes various securities that have different levels of profitability and degrees of risk.
Risk and return of the investment portfolio determined on the basis of the objectives set by the investor. If an investor creates an aggressive portfolio, then the risk and profitability of the securities that are included in such an investment portfolio are quite high; usually an “aggressive” portfolio consists of shares of young, fast-growing companies. A conservative portfolio is characterized by low risk and low return on securities; usually a “conservative” portfolio includes securities of large companies that bring a small but guaranteed income.
Most investors prefer to have a balanced mix of securities, risk and return of the investment portfolio in this case, they are approximately equal, which allows you to receive a stable income by balancing between the risks and returns of various types of securities.
When developing a portfolio formation strategy, purchasing and selling securities, the management company must constantly calculate the level of risk and profitability of the investment portfolio.
To assess the risk and profitability of an investment portfolio, it is necessary to conduct a multifactor analysis, which can be based on various mathematical models. Often, specialized software is used to assess the risk and return of an investment portfolio.
The yield of securities is assessed using a fairly simple formula: from the value of the securities at the time of calculation, it is necessary to subtract the value of the securities at the time of purchase, and divide the difference by the value of the securities at the time of purchase.
Assessing the risk of securities is a complex process. Market conditions are constantly changing, often the rise or fall in the value of securities is influenced by factors that cannot always be taken into account even by the most effective mathematical models. Portfolio risk is assessed not only in the form of total risks for each security, but also by the risk that may arise due to the influence of the value of one type of security on the value of another type of security.
As a rule, the total investment portfolio risk consists of systematic and diversifiable risk, which may depend on various parameters.
R portfolio, % = R 1 × W 1 + R 2 × W 2 + ... + R n × W n,
where R n is the expected return of the i-th stock;
W n is the share of the i-th stock in the portfolio.
Where D i – the share of a specific type of securities in the portfolio at the time of its formation;
r i – expected (or actual) profitability i- that security;
N - the number of securities in the portfolio.
Portfolio risk is measured by the standard deviation of the actual portfolio return from the expected one and is determined by the formula:
, (2)
Where - standard deviation of the portfolio;
, - share of assets i and j in the initial value of the portfolio;
- covariance (interaction or interdependence) of expected returns i th and j th assets.
The covariance of expected returns is calculated using the formula:
, (3)
Where Cor ij – correlation coefficient between expected returns on assets;
,- standard deviation of profitability i- go and j th assets respectively.
The profitability of a securities portfolio can directly depend on the strategy chosen by the investor. With an aggressive strategy, the profitability, as well as losses of the securities portfolio, can be relatively high; when using conservative strategies, the profitability of the securities portfolio can be insignificant. As a rule, investors choose balanced strategies that allow them to receive a stable income using a formed portfolio of securities.
Individual security risk and portfolio risk G
The risk inherent in an individual, specific security occurs both in relation to their totality (portfolio) and in relation to all securities, i.e. to the securities market as a whole. However, since the rights under a particular security objectively conflict with the rights under another security (for example, an increase in income on one security may be associated with a slowdown in income growth on another; an increase in purchases of one security, i.e. an increase its liquidity may lead to a decrease in the turnover (liquidity) of some other security, etc.), insofar as the risk of an aggregate (portfolio) of securities is not a simple sum of the risks of the securities included in it, and the risk of the market as a whole is not the arithmetic sum of the risks of all its constituent securities or their portfolios.