It is never a good idea to put all your eggs in one basket, and this is as true in the world of finance as it is anywhere else. One way in which you can spread the risk of investing is to purchase several different assets, in an investment strategy known as portfolio investing. That way, if one asset fails to perform, your other assets will hopefully make up for it. Here is a guide to putting together an investment portfolio.

A portfolio is a collection of investments that are held by an individual or an institution. The basic idea behind a portfolio of investments is that you spread the investment risk across several assets, in a process known as diversification. So, if one of the assets in your portfolio were to fall dramatically in value, rises in the value of the other assets in your portfolio would cancel this out to a certain extent. A portfolio can contain financial assets of any kind, such as shares, options, bonds, warrants, real estate, warrants, futures contracts, or production facilities – pretty much anything that is expected to hold its value or rise in value can be included in a portfolio.

When a financial institution is building up an investment portfolio, they will usually conduct their own investment analysis in order to help them decide which assets to purchase for their portfolio. However, it is more common for private individuals to allow a financial advisor or a financial institution to manage their portfolios on their behalf, with their guidance and approval. Deciding on the contents of a portfolio is an ongoing process. Things that you will have to think about include your investment goals, the prevailing economic conditions, what assets to purchase and when to purchase them, and which assets you want to get rid of. These decisions should be based on accurate performance measurements, based on the expected return from your portfolio, the amount of risk that you are expecting to bear, and the performance of the assets in your portfolio.

Your attitude towards risk will also have a great bearing on the type of assets you wish to include in your portfolio. For example, if you are not wanting to take a particularly big risk with your investment portfolio, you would go for assets that are perceived to be safer, with lower potential returns, such as corporate and government bonds. However, if you do not mind taking a bit more of a risk with your portfolio, you might want to include higher-risk assets with greater potential returns, such as shares or futures contracts, in your portfolio.

There are several different ways in which you can calculate portfolio returns. Traditionally, portfolio managers have used what are called money-weighted returns, which are calculated monthly or quarterly, and assume that the rate of growth over that period has been constant. Money weighted portfolio returns do not tend to be very accurate, as portfolio returns fluctuate on a daily basis. True time-weighted returns are a more accurate method of measuring portfolio growth, as they take into account changes to the portfolio value on a regular basis, such as every day, and then compound this data into a monthly or quarterly portfolio report. However, this usually involves higher portfolio management fees.

Most small investors make infrequent changes to their portfolio, preferring to hang on to assets for long periods in the expectation that any dramatic changes in their value will even themselves out over time. This is known as a buy and hold strategy. Other portfolio strategies include day trading, index investing, growth investing, and value investing.