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Portfolio
14 january 2022
A portfolio is a combination of different investments that we own. If, for example, we own investments in real estate worth BGN 200,000, investments in mutual funds worth BGN 150,000 and investments in gold worth BGN 30,000, then we have a portfolio with a total value of BGN 380,000. It can also be shown this way:
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This means that in our portfolio with total value of BGN 380,000 we have 7.9% invested in gold, 39.5% in mutual funds and 52.6% in real estate.
The distribution of investments in different types of assets is essential to protect ourselves from single risks. The saying "Never keep all your eggs in one basket" applies in full force to our finances. Historically, some asset classes have moved differently from another asset class - a good example being bonds that looking back in time, in most cases they moved differently relative to shares. This means that when the stock market falls, bond prices may rise. When the two asset classes are combined in one portfolio, the temporary growth in one class can compensate for the temporary decline in the other class, effectively reducing the risk. Mutual funds use asset allocation models (investing in certain asset classes) that lead to certain combinations between these two asset classes - stocks and bonds, with the goal of balancing risk and return. Such a combination is called a balanced portfolio.
