What Are the Benefits of Having an Investment Portfolio?
The benefits of having an investment portfolio can be far-reaching, possibly lasting for generations to come. Wise investing can help an individual not only to guard his initial investment but also grow that capital to levels that it would not otherwise have attained. With investments come certain privileges, not the least of which is to enjoy the profits that the company earns and shares with investors. While an investment portfolio introduces some risk, it also offers an investor some control over his financial future.
Having an investment portfolio in and of itself is not necessarily beneficial. An investor needs to allocate capital in a prudent way in order to reap the benefits of having exposure to the financial markets. By creating a diversified investment portfolio, which is to spread capital across more than just one investment category, investors can reap benefits. Diversification into multiple asset classes will help to protect an investor's capital in the event that one segment of the financial markets does not perform well. In the 10 years ending in 2009, for instance, stocks traded on the New York Stock Exchange declined by 0.5 percent, according to "The Wall Street Journal," while bonds advanced in the same period.
Without an investment portfolio, an individual may be unprepared for some of the major milestones in life. Placing money in a bank savings account may protect money, but growth is likely to be highly modest in comparison with the potential profits in the financial markets. By having an investment portfolio, an investor can not only invest to guard his capital but also position the portfolio to potentially earn sizable profits so that he is prepared for events such as funding a college education.
By building an investment portfolio that focuses on income securities, an investor can supplement his income for the near term and in the future. For instance, dedicating a percentage of assets to dividend-paying stocks will create a steady income stream of those distributions. Stock dividends are not generally guaranteed, but certain companies make uninterrupted payments over decades. Investing in bonds is another way to generate income, as these fixed-income securities make regular interest payments over the life of the investment.
An investor who chooses to direct capital into the financial markets as opposed to other investment choices, such as real estate, is likely to be able to access that money in a timely manner when needed. Unlike real estate, equities or fixed-income instruments can be easily traded based on supply and demand. As a result, an investor can exchange the investment for cash rather quickly. Investing in tangible assets, such as land, is a longer-term commitment that generally can not easily and quickly be converted to cash.
Geri Terzo is a business writer with more than 15 years of experience on Wall Street. Throughout her career, she has contributed to the two major cable business networks in segment production and chief-booking capacities and has reported for several major trade publications including "IDD Magazine," "Infrastructure Investor" and MandateWire of the "Financial Times." She works as a journalist who has contributed to The Motley Fool and InvestorPlace. Terzo is a graduate of Campbell University, where she earned a Bachelor of Arts in mass communication.