5 Popular Portfolio Types and Examples 5.00 / 5 (100.00%) 1 vote

Diversifying investment is one of the best ways that investors can protect their portfolios. The concept of diversifying is similar to the traditional concept of not putting all your eggs on the same basket. The rationale behind this concept is that it helps to ensure that the severity of a risk is minimized. Further, it is meant to ensure that there is better performance or rather return on investment. Diversifying investment capital in all ways makes sense. There are 5 popular portfolio types that are used by a majority of investors, they include;

Aggressive

5 Popular Portfolio Types

An aggressive portfolio is simply a basket of stocks that includes high risk/high reward stocks. An important feature of the aggressive portfolio stocks is that they have a high beta, which means that they are sensitive to the overall market movements. When stocks are said to have a high beta they frequently experience larger fluctuations, which is relative to the broad market. For example, if a stock has a beta of 3.0 then it is expected to typically move thrice in either direction of the general market. Aggressive portfolios are commonly associated with companies that are in their early stage of their growth and require an investor that is willing to invest in such companies. The key to success in this type of portfolio is trying to keep losses to a minimum and taking profit.

Defensive

Defensive portfolio is made up of stocks that are usually associated with a low beta protecting them from the broad market movements. One type of stock that usually falls in this category is the cyclical stocks. They are sensitive to the underlying economic business cycle like recession or boom sessions. It is essential to note under in the business world during recession, companies that are usually trade luxury goods are more affected than those that trade in basic needs. The economic sense of buying cyclical stocks is that they offer the investor vital protection in the event of economic cycles, in this case detrimental events. Most investors therefore find the option of having a defensive portfolio prudent.

Income

Income portfolios are meant to make money through dividends. They consist of assets that pay dividends or other types of income to stakeholders. Income portfolio is similar to defensive stocks except that it offers higher yields because it generates positive cash flow. Real estate investment trusts (REITs) is a good example of assets used in this portfolio. Investors who wish to choose this type of portfolio should look for stocks that are out of favor but their high dividend policy is maintained.

Speculative

A speculative portfolio is a high risk portfolio, it almost like a pure gamble. The general rule for any investor that wants to go for this type of portfolio is that only a maximum of 10% of assets should be considered to fund a speculative portfolio because there is a high risk of losing all your investment. Some of the popular speculative plays could include; IPOs or stocks rumored to be takeover targets and tech or health care firms that have a breakthrough product in the process of research.

Hybrid

Hybrid type of portfolio involves combining different types of investments with the goal of building a single diverse portfolio that include investments like; bond, real estate and even art. Typically, hybrid portfolios could be a mixture of blue chip stocks as well as high-grade fixed income securities. REITs and MLPs are common in hybrid portfolios.

An investor should study all the portfolios and make a decision to appropriately allocate across all 5 popular portfolio types. It requires effort for investors to build proper investment portfolio that will increase their investing confidence as well as create control their finances.