Description
Transcript
If you’re an investor, your portfolio’s structure is probably one of the most important things for you to consider, and more specifically – Your exposure to different sectors, asset types and instruments.
So, let’s start from the beginning.
Not that beginning.
A portfolio always starts with a cash balance. Then you start doing what is called an Asset Allocation.
Asset Allocation is basically when you allocate your cash to buy different asset types, which will eventually make up the structure of your portfolio.
These assets could include equities, fixed income, commodities, crypto, indices, and currencies, and can be invested directly or indirectly – via ETFs or smart portfolios.
This is important to understand since your choice of allocation will define the portfolio’s volatility and risk exposure.
For example, a portfolio with significant exposure to crypto and commodities may be likely to see much more volatility than, say, a portfolio more heavily weighted towards assets like ETFs, cash, and fixed income.
Other than your asset allocation it’s also important to consider diversification.
This could be the diversification of investment themes, geographic exposure or other criteria.
Say you want to dedicate 60% of your portfolio to stocks, you may still want to diversify within that.
So instead of having 1 stock worth 60%, you could have 20 different stocks each worth 3%.
Another factor worth noting when building your portfolio is the Risk Score. This can be used as a general guide to understanding the risk of your portfolio.
Oh, and one last thing. There’s always the option to copy someone else’s structure.
With eToro’s Copy trading feature, you have the ability to copy the portfolio strategy of experienced traders automatically.
That’s it for today!
Remember that your portfolio structure is one of the most important things for you as an investor, so make sure you keep an eye on it, think about diversification, and be mindful of the risk score.
We’ll see you in the next video.