A portfolio is a collection of financial assets - such as shares, bonds and cash equivalents - held directly by an investor or managed by financial professionals. An investor should create a portfolio in accordance with his/her risk tolerance and investing objectives.

The three asset classes - equities, bonds and cash equivalents - have different levels of risk and return therefore each will behave differently over time. Asset allocation is an investment strategy that can help an investor balance risk and reward of the portfolio according to his/her risk tolerance and investing goals.

Common Types of Investment Portfolios

1. Conservative Investment Portfolio

The portfolio is geared towards preserving capital and uses the risk averse investment strategy. It emphasizes on current income in the form of dividends or coupon payment from bonds rather than emphasizing on growth. It is popular with retirees and investors who are looking for a steady flow of cash without assuming too much risk.

2. Aggressive Investment Portfolio

It is ideal for an investor who is a risk taker because it has high risk/high reward proposition. Risk management is very important when building and managing this type of portfolio. It usually focuses stocks especially of rapidly growing companies. Aggressive portfolios perform better in the long term.

3. Balanced investment portfolio

This type of portfolio focuses on bonds for income generation and stocks for investment growth. This combination helps to manage downturns in the stock market without too much financial loss.