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.

Hot Definitions
  1. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  2. Down Round

    A round of financing where investors purchase stock from a company at a lower valuation than the valuation placed upon the ...
  3. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  4. Portfolio Investment

    A holding of an asset in a portfolio. A portfolio investment is made with the expectation of earning a return on it. This ...
  5. Treynor Ratio

    A ratio developed by Jack Treynor that measures returns earned in excess of that which could have been earned on a riskless ...
  6. Buyback

    The repurchase of outstanding shares (repurchase) by a company in order to reduce the number of shares on the market. Companies ...
Trading Center