Learning About a Finance Portfolio

There are a lot of terms that go in and out of the world of finance. One of the most common words being talked about is a ‘portfolio’. Even commoners hear this word, but then again, it could mean a lot of things, like an artist’s portfolio, a writer’s portfolio, and even a career portfolio. But in the world of finance and business, a portfolio is a collection of investments that are being held or managed by a certain individual or institution.

Nobody just gathers information into a portfolio and manages it either using an online portfolio manager or the old school way. There are strategies that have been made that aim to create a decent portfolio. Some of the methods include the following: 1) capitalization-weighted portfolio, 2) equally-weighted portfolio, 3) optimal portfolio, and 4) price-weighted portfolio.

Portfolio management involves the act of picking out which assets to include in the portfolio. Some people use a portfolio rebalancing software to define the goals as well as the risk tolerance of the owner of the portfolio. While some people prefer a Do It Yourself portfolio management style, the selection involves deciding which of the assets should be acquired or divested, and managing how many to divest/acquire. These decisions do involve some performance measurement, which certain portfolio software may be able to satisfy. Most of the concepts that are being measured are the expected returns on the portfolio, standard deviation, risks associated with the returns, and more. However, since there is no actual certainty of the values, the computations are done on a qualitative basis rather than a precise quantitative basis.

A market portfolio on the other hand is a portfolio which consist of the total weighted sum of each and every asset in the market. Together with the weights are the proportions in which they exist in the market. The concept of having a market portfolio is that it plays a role in several theories and models where the only fund the investors need to invest is determined.