A:

The quick answer to this question is that a portfolio is a collection of stocks, bonds and/or other investment assets. A portfolio may be owned by an individual, a group of people or a company, and it can be made up of a few different types of investments (like those owned by individual investors) or hundreds of different investments (like those owned by mutual funds, pensions and large companies). Rather than something physical like a briefcase, which you can carry around, the portfolio is an abstract concept and a sleek way of denoting something that's actually not so compact.

One way to understand how investors use the term to refer to the sum of the assets they own is to draw a comparison between a portfolio and your office at work. You can describe your office to others in two ways:

  1. You could refer to the conventional meaning of "office," meaning "this is the room in which I get work done and keep some of my work-related things." When you give this description, the over-arching idea of the office implies all of the items found within it.
  2. You could list each individual element that composes your office. For example, "These are the four plaster walls that form a square around my desk. This is my computer, my filing cabinet, my shrine to Elvis…," and so forth. When you give this description, you build the idea of the office by presenting its components.

    When discussing a portfolio, investors use the first method for the purpose of summation - that is, to get a quick figure on how much all the assets they own are worth. So, as an investor, you might say, "My portfolio [all my investments together] has increased in value this year." This doesn't mean every one of your investments went up in value; it means the average value of all your investments increased. If you opted for the second approach to describe your assets, you would have to say, "My 200 shares of GE fell 10% to $33.20, but they were offset by the 15% increase of my 400 Microsoft shares... ." Simply put, a portfolio is a way to think about the value of a larger group of assets belonging to one entity.

    To learn more about the basics of stocks, please see this stocks basics tutorial.

RELATED FAQS
  1. Where do penny stocks trade?

    Generally, penny stocks are traded through the use of the Over the Counter Bulletin Board (OTCBB) and through pink sheets. ... Read Full Answer >>
  2. Where can I buy penny stocks?

    Some penny stocks, those using the definition of trading for less than $5 per share, are traded on regular exchanges such ... Read Full Answer >>
  3. How does the stock market react to changes in the Federal Funds Rate?

    The stock market reacts to changes in the federal funds rate in various ways depending on where it is in the business cycle. ... Read Full Answer >>
  4. What are the requirements for being a Public Limited Company?

    The requirements for an entity to be considered a public limited company (PLC) include registration requirements, establishing ... Read Full Answer >>
  5. Is there a difference between financial spread betting and arbitrage?

    Financial spread betting is a type of speculation that involves a highly leveraged derivative product, whereas arbitrage ... Read Full Answer >>
  6. How do I place an order to buy or sell shares?

    It is easy to get started buying and selling stocks, especially with the advancements in online trading since the turn of ... Read Full Answer >>
Related Articles
  1. Mutual Funds & ETFs

    Top 5 Chinese Mutual Funds

    Learn about some of the most popular and best performing mutual funds that offer investors exposure to the important emerging market economy of China.
  2. Investing Basics

    Explaining Unrealized Gain

    An unrealized gain occurs when the current price of a security exceeds the price an investor paid for the security.
  3. Investing Basics

    What is a Settlement Date?

    A settlement date is the day a security trade must be settled.
  4. Investing Basics

    Explaining Risk-Adjusted Return

    Risk-adjusted return is a measurement of risk for an investment or portfolio.
  5. Investing Basics

    What's a Price-Taker?

    Price-taker is an economic term describing a market participant who has no effect on overall market activity.
  6. Investing Basics

    What are Class B Shares?

    Class B shares are one classification of common stock issued by corporations.
  7. Mutual Funds & ETFs

    ETF Analysis: iShares Agency Bond

    Find out about the iShares Agency Bond exchange-traded fund, and explore detailed analysis of the ETF that tracks U.S. government agency securities.
  8. Mutual Funds & ETFs

    ETF Analysis: PowerShares S&P 500 Low Volatility

    Find out about the PowerShares S&P 500 Low Volatility ETF, and learn detailed information about this fund that provides exposure to low-volatility stocks.
  9. Mutual Funds & ETFs

    ETF Analysis: Vanguard Intermediate-Term Bond

    Find out about the Vanguard Intermediate-Term Bond ETF, and delve into detailed analysis of this fund that invests in investment-grade intermediate-term bonds.
  10. Investing News

    The Brief: Where Is the Bottom?

    Where is the market going today after yesterday's bumpy ride?
RELATED TERMS
  1. Equity

    The value of an asset less the value of all liabilities on that ...
  2. Exchange-Traded Fund (ETF)

    A security that tracks an index, a commodity or a basket of assets ...
  3. Dividend Yield

    A financial ratio that shows how much a company pays out in dividends ...
  4. Security

    A financial instrument that represents an ownership position ...
  5. Compound Annual Growth Rate - CAGR

    The Compound Annual Growth Rate (CAGR) is the mean annual growth ...
  6. Return On Investment - ROI

    A performance measure used to evaluate the efficiency of an investment ...

You May Also Like

Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!