Features of an ideal financial portfolio

A financial portfolio is a collection of investments which an investor chooses to invest in to achieve his/her financial goals. It is a combination of assets such as stocks, bonds, and cash and provides much-needed diversification to an investor so that he can lower the risk of loss by way of evenly distributing the risk across various investments.

Every investor is always looking for a financial portfolio that is ideal according to his/her need. The correct mix of investments for you depends entirely on your financial situation and your financial goals. Although, each investment portfolio is different, all financial portfolios have a few features in common:

Diversification:

Investing includes a high risk of losing all of your money; extensive diversification of the portfolio is a must to safeguard you from this potential hazard of losing capital and income. Diversification refers to the process of investing in different asset classes and in the securities of various companies in the attempt of reducing the overall risk of investment and to avoid the poor performance of the portfolio due to incurring a loss in a single security.

Diversification can help an investor manage risk by the distribution of risk factor among the investments. For instance, you have invested Rs 1,00,000 in ABC company and Rs 2,00,000 in XYZ company. You incur a loss of Rs 50,000 in the investment of ABC and a profit of Rs 1,00,000 in the investment of XYZ company. Here, you have managed the risk of losing 50,000 by gaining Rs 1,00,000 in the investment of XYZ company. Had you have only invested in ABC company; you would have incurred a loss of Rs 50,000. Hence, diversification is one of the most important factors in creating an ideal financial portfolio.

Liquid Assets:

A liquid investment is an investment which can be transformed into cash immediately without losing the invested money. Liquid investments help investors meet emergencies. Portfolio comprising of liquid investments allows the investors to accumulate funds by the sale of liquid securities or borrowing by extending them as collateral security. It requires you to invest in high grade and readily saleable investments to ensure their liquidity and collateral value. This will make sure that you can sell your stocks whenever you want and convert them to cash without having to wait for a long time.

Simple and Transparent:

Your financial portfolio should be straightforward. You should understand what each element of your portfolio is, and what it is supposed to do. It should be simple without being complex and shouldn't have additional components. You should be able to quickly review and assess your portfolio's performance from a few account statements that each contains no more than a handful of securities and transactions each year. This simplicity will allow you to monitor your investments without having to give a lot of time to manage your investments.

Tax Efficient:

While planning a financial portfolio, the investor should seriously consider the tax consequences of the investments. An ideal financial portfolio achieves its goals at the lowest cost possible; if your investments are tax efficient, you can maximize the quality of your investment strategy and of the portfolio it produces.

A lot of online websites provide you with the much-needed assistance to create an ideal portfolio. If you have any doubts regarding when and where to invest, experts will provide you with valuable advice so that you can achieve your financial goals efficiently.

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