Glossary
Portfolio
The full collection of investments a person or fund holds, such as stocks, bonds, funds and cash, managed as a single whole.
On this page
A portfolio is everything an investor owns, viewed as one unit: stocks, bonds, funds, cash and any other assets, across all of their accounts. Thinking in portfolio terms matters because risk and return come from how holdings behave together, not from any one position. A volatile stock can make a portfolio safer if it tends to rise when everything else falls.
How it works
A portfolio is usually described by its Asset allocation, the share of money in each broad asset class, and then by what sits inside each class. Its return over a period is the weighted average of the holdings' returns.
Risk does not add up the same way. Because assets do not move in lockstep, the portfolio's Volatility is usually lower than the weighted average of each holding's volatility. That gap is the payoff from Diversification, and it depends on the Correlation between holdings.
Managing a portfolio
Day-to-day portfolio work comes down to a few recurring decisions:
- Setting a target mix that fits the investor's goals, time horizon and Risk tolerance.
- Choosing vehicles, such as individual stocks, index funds or ETFs.
- Rebalancing, which means trading back to the target weights after markets move them.
- Measuring results against a suitable Benchmark, net of fees and taxes.
A common mistake is judging each holding in isolation. A position that lost money in a year when stocks rallied may still have done its job if it was there to cushion a downturn.