In investment, the word portfolio refers to the total of all passive investments held by an investor.
The asset classes of investment vehicles which make up an investment portfolio and the ratio of the portfolio made up of each asset class determines its risk level. If a large portion of an investor’s assets are made up of investment vehicles which are prone to rapid loss of value, the portfolio is said to be high-risk. If a portfolio is made up primarily of assets which hold their value, the portfolio is said to be low-risk.
High-risk asset classes include stocks, derivatives, structured products and shares in high-risk investment funds. Alternative assets such as junk bonds, penny stocks, cryptocurrencies and blockchain tokens are considered to be ultra-high risk. Bonds, medium-term notes and other fixed-income investment vehicles are generally considered to be low risk, as are cash, precious metals and real estate.
Investments with a high level of risk typically deliver higher returns than investments with low levels of risk. The term portfolio balancing denotes the act of buying and selling investments to balance the portion of an investment portfolio made up of high-risk investments with that made up of low-risk investments.
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