My friend and I have discussed quite an interesting topic recently: our investment preferences. Personally, I'm more interested in trading: it's more exciting. There's a downside as well, though: to analyse information and make a decision sometimes take too much time. So, this money-making method doesn't suit people who work long hours. My friend, on the contrary, has gone for investing.
The advantages are obvious here:
- Firstly, you spend less time examining assets.
- Secondly, it’s easier to manage funds.
- Thirdly and finally, PAMMs, for example, are more transparent than currency markets.
I should make it clear here: Forex trading implies huge amounts of information such as economic news, historical data, and indicators’ readings. When dealing with PAMMs, you only need to examine profitability in various accounts. You can make faster decisions and your results are therefore more predictable. That's why I decided to delve into the subject and do some investigation into investment techniques and portfolios.
What is portfolio investing?
Let's look into the terms first.
- Portfolio investing means investing in different assets for diversifying risks.
- Risk diversification literally means their reduction through distributing risk potential among different assets.
- PAMMs are investment assets managed by currency traders. These traders' results are the very basis for your investment strategy, and your return is reliant on them.
To put it shortly, portfolio investing is a tool for creating a low-risk source of passive income with high liquidity.
What are portfolio types?
Investors have different opinions about the classification of portfolios. Some of them point to 3 types and some of them name 4 types. I'm more inclined to single out 3 types: aggressive, conservative and balanced.
The first type is the most profitable and is therefore associated with the highest risks. It may look as follows:
As you can see, managers with the highest daily profitability usually register negative profitability in the long term.
A conservative portfolio implies that funds are invested in low-profit and low-risk assets, which allows investors to make more accurate forecasts regarding their money. Let's examine a few assets that suit this type of investment:
As we can judge, this type of investment involves low unprofitability, low daily profitability and stable long-term profits.
With a balanced portfolio, funds are distributed evenly between 2 types of assets, so risks are low here, but profits are medium.
Thus, your portfolio depends on your personal preferences with respect to risks and profitability.
Personally, I think that a balanced portfolio is the best option for those who want to eat cake and have it, i.e. to try to make high profits without losing the whole of funds. I'm not speaking about 50% aggressive/50% conservative portfolio, though. I'd rather prefer the following ratio:
10% of new promising assets, 10% of aggressive assets, 20% of medium profitability assets, and 60% of conservative assets in a 1-year-old account, at least.
In conclusion, I'd like to add that investing has seemed to me as interesting as trading. So I've built my own portfolio and I'm ready to share it with my subscribers. If you wish to subscribe, please use the form below.
Remember to leave a comment - I'll be glad to discuss my portfolio with you.
The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.