What Is a Stock Portfolio?

When an investor wants their capital to grow to reach a financial goal, like retirement or a large purchase, starting an investment portfolio is a first step. A portfolio is a collection of all the investments the investor owns, and it may include all the stocks they’ve purchased. Putting together a strong portfolio that reflects an individual’s risk tolerance, time horizon, and goals may help increase wealth over time.

What is a portfolio?

A portfolio is a collection of a person’s investments across asset classes, such as stocks, bonds, cash, and real estate. Assets may be owned outright, or they may be subject to a vesting schedule. Assets may also be tucked into tax-deferred retirement accounts with withdrawal restrictions. The goal is to make portfolio investments in a way that earns a return while reflecting the investor’s risk tolerance, time horizon, and financial goals.

Diversification

, or spreading an individual’s money across different assets, can help reduce volatility and potentially limit losses. That’s because different factors impact each asset class. For instance, stock prices often rise when bond prices fall and vice versa. There are other ways to diversify a portfolio, too, such as mixing securities within each asset class and across domestic and foreign markets.

Asset allocation refers to the way a portfolio is split among different types of assets. An individual’s allocation depends on their risk tolerance and how long they have before reaching their financial goal. For instance, a conservative investor nearing retirement might aim for a less risky portfolio with less invested in stocks. But a younger investor might be comfortable taking on a bit more risk because they have more time to ride out market highs and lows.

Over time, investors can monitor their portfolio to see if their strategy is working. Rebalancing involves adjusting an individual’s asset allocation to better reflect their preferences or counteract forces in the market. An investor can decide whether to rebalance at set intervals, such as every 12 months. Or they might make changes when the allocation of one of their asset classes shifts by more than a certain percentage, such as 5%.

A stock portfolio tracker is one tool that may help here. These help investors track the movement of securities in their financial portfolio, monitor how their current strategy aligns with their financial goals, and compare their portfolio’s performance against market benchmarks.

Types of portfolios

There are many ways to build a portfolio, and investors may even choose to have multiple portfolios that each reflect a different strategy for a different need.

• Hybrid portfolio.

  A hybrid portfolio is invested in multiple asset classes, such as stocks, bonds, real estate, cash equivalents, and commodities. When taking this approach, investors often set a fixed proportion for each asset class. This can help the portfolio grow while reducing risk because equities and fixed-income securities typically have a negative correlation with one another, meaning one increases as the other decreases.

• Aggressive, equities-focused portfolio.

  An aggressive, equities-focused portfolio is focused on growth, so it may contain newer or less-proven companies or industries that have the potential to realize outsized gains. These stocks typically have a high beta, which means they experience greater fluctuations in price than the overall market. Investors with aggressive portfolios have a high risk tolerance and may have a longer investment horizon to make up for any losses.  

• Defensive, equities-focused portfolio.

  A defensive, equities-focused portfolio mainly seeks to limit losses. To achieve that goal, investors may seek conservative stocks with historically low volatility or high quality. For instance, an investor might focus on companies that have a history of doing well in bad times as well as good times. This type of portfolio typically experiences smaller price drops in down markets but more muted gains as the market recovers.

• Income-focused, equities-focused portfolio.

  This type of portfolio focuses on investments that earn money from dividends or other types of distributions. The primary focus is finding companies that produce high yields to help the portfolio generate positive cash flow. While investors may be risk-averse, there’s no guarantee that stocks in an income portfolio will do well.‍

• Speculative, equities-focused portfolio.

  This type of portfolio contains speculative stocks, which are risky because they belong to newer companies that promise high returns without a proven track record. For instance, the portfolio may invest in initial public offerings (IPOs) or companies that are working on a breakthrough product. Speculative, equities-focused portfolios are typically best for investors with a high risk tolerance and long time horizon.

The impact of time horizon on portfolio allocations

Time horizon refers to the amount of time an individual expects to hold an investment before selling it. To find their time horizon, investors ask themselves, “When do I need this money?” The answer is typically connected to the amount of time they have before reaching a financial goal.

For instance, an investor who’s 30 years old might have a goal of retiring at age 65. Their time horizon is 35 years. Knowing financial goals can help investors create a time horizon and figure out how they’ll diversify your portfolio and allocate their assets accordingly.

• Long time horizon.

  People with longer time horizons—at least 10 years in the future—tend to be more aggressive because they have more time to deal with potential losses during market lows. These investors typically allocate a larger percentage of assets to riskier asset classes, such as stocks and real estate. These asset classes are more volatile than some others, but they potentially offer higher returns.

• Medium time horizon.

  Investors have a medium time horizon if their goals, like saving for their child’s college tuition, are within five to 10 years. A medium time horizon allows for some risk, but the investor will likely have a mix of investments that hedge against major losses. For example, an individual may diversify their investments between stocks and lower risk bonds.‍

• Short time horizon.

  A short time horizon refers to money needed within five or fewer years, such as an emergency fund. Investors with a short time horizon tend to be more conservative because they won’t have as much time to recover from market setbacks. While they want to see some growth, they prioritize financial stability and predictable returns and may put their money in a high yield savings account or invest in assets like cash-equivalent securities.

The bottom line

Stock portfolios are typically categorized by the type of investment strategy they serve. When choosing their own, investors consider their risk tolerance, how much time they want to put toward monitoring the portfolio, and their time horizon.

• Growth portfolios.

  Thesetypically invest in more aggressive assets and can quickly increase in value. But because these investments come with more volatility and risk, this portfolio may be well-suited to investors with a long time horizon.

• Income portfolios.

  These generally invest in stocks that provide consistent dividends and other assets that provide income. There is less risk in these portfolios.

• Conservative portfolios.

  These seek returns while taking on some degree of risk, so these have a blend of growth and income investments.