Before making an investment decision, investor should make a good portfolio. Portfolio of an investor totally depends upon his/her risk taking ability. Investors who want to live on the interest of their investments allocate larger part of their money to bond investments so that they could receive fixed interest payments whereas investors who do not want to live on the income from their capital gains and have a long time horizon allocate a greater percentage towards stocks.
There are mainly three types of investors i.e. Conservative, balanced and aggressive.
- A conservative investor is one whose investment goals are to preserve capital and provide some growth.
- A balanced investor is one who invests a greater percentage to common stocks, providing capital growth and keeps a large percentage of assets in bonds, providing income.
- Aggressive investor gives a higher weight to common stocks, providing capital growth.
An investor should not always follow thumb rule of investment, they should allocate their money according to their investment objective and risk profile. Portfolio should be re-balanced after a gap of six months. Investor should invest at least 5 % of the portfolio in liquid or short term funds that could easily convertible into cash.