An investment portfolio can be divided into different types based on the investor’s goals and risk levels. However, please note that, ultimately, each portfolio type focuses on either generating income or growing wealth. For more clarity, let’s understand the various types in detail:
Type I: Income portfolio
An income portfolio focuses on generating a regular stream of income. It does not try to grow the overall value of the investments. This type of portfolio is ideal for investors who want steady and predictable returns. For example, an income portfolio includes stocks of companies that pay regular dividends. Instead of focusing on stocks that increase in value, they prefer investments that provide consistent payouts.
Type II: Growth portfolio
A growth portfolio is focused on wealth creation and invests in companies that are expected to grow quickly. Investors in this type of portfolio put their money into “growth stocks”, which are shares of companies in their expansion phase. These companies reinvest their profits to grow and usually do not pay dividends.
It must be noted that growth portfolios often come with higher risks because these companies are more volatile. However, they also carry the potential for high returns and suit investors willing to take on more risk.
Type III: Value portfolio
A value portfolio focuses on finding investments that are undervalued in the market. It specifically looks for fundamentally strong companies whose stock prices are lower than their actual worth. The ideology behind making these investments is that the market will eventually recognise the company’s true value.
At this time, the prices of these stocks will increase, and value investors can sell them to make a profit. This type of portfolio is usually less risky than a growth portfolio but requires patience as returns may take time.
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