We often hear the word “investment” in the news, read in newspapers and magazines. But for an ordinary person who does not understand the topic of finance, it is not clear what this concept means, especially since it is difficult for him to guess about the classifications of the investment process. In this article we will define in detail what investments are, what types there are, and also dwell on the concept of “portfolio investments”.
Investments - definition of the concept
As we know, nothing happens for nothing, especially investing money. Any investor expects such an action to exaggerate his income. With the help of investments, you can make a profit by increasing the value of your own securities, as well as when dividends are received. Thus, investments are correct and calculated investments of certain capital with the aim of making a profit.
Types of investments
There are two types of investments.
- Real - investments in material and intangible resources. Under these specialized concepts This includes material assets, intellectual property, inventions, scientific and technical elements and other capital.
- Financial - investments in securities, various assets, bank deposits and others.
There are differences in such investments based on purpose.
- Direct - along with financial investments, a person receives the right to manage the business in which he made an investment. As you know, every enterprise has its own authorized capital, with this type of investment the investor receives at least 10% of this capital. At the same time, a person who has invested in any enterprise gets the opportunity to manage controlling stake shares
- Portfolio investment represent the indirect participation of the investor in the process of earning money.
What is portfolio investment?
Portfolio investments are investments that are designed to provide financial benefit through the payment of dividends and interest. But the investor does not manage the enterprise or organization in which the funds were invested.
The difference between direct investment and portfolio investment
Direct and portfolio investments investments differ in volume. At any moment, portfolio investments can switch to a different type; this happens if there is a drop in market liquidity. And if liquidity is at a good level, then, despite the negative trend, the investor can sell his investments at favorable price.
What types of portfolio investments are there?
Direct and portfolio investments have their own varieties. The latter can be classified according to different criteria of their formation and demand in the securities market. It all depends on the criterion by which investments are distributed.
Types of portfolio investments are distributed according to the degree of profitability and risk as follows:
- Investments that have the highest return, but at the same time there is a very high risk in the efficiency of using funds.
- Investments that generate constant and stable profits small size. They mainly consist of shares of reliable companies and have a low probability of risk.
- Investments that consist of shares of varying returns and degrees of risk.
Portfolio investments can be classified depending on the timing:
- Short-term - can last from several hours to six months.
- Medium-term - their investment period is from 6 months to one year.
- Long-term - from 1 year or more.
Making such investments within the country
There is deep control over various investments within the country. Current legislature applies to both direct and portfolio investments. Especially such increased attention from the state is observed during a crisis, which, in turn, negatively affects profit generation.
Impact on the investment process government agencies includes the following items:
- Regulation of all conditions that are directly related to investment activities. The documents reflect all income and expenses, in most cases additional taxes are included. But there are also opportunities to protect investors at the legislative level, which stimulate and create favorable conditions for economic development.
- Direct participation of the state in investment activities, that is, the state continuously participates in the formation of the enterprise’s capital.
Foreign investments of this type of investment
Portfolio investments made foreign citizens or enterprises, is the investment of a certain capital of investors in more profitable companies and holdings. The foreign investor himself does not take part in the life of the project, but only observes it with the intention of receiving high profits and reducing risk indicators.
Foreign portfolio investments include: bonds, transferable bank receipts, shares, certificates of deposit, promissory notes, bonds.
Portfolio foreign investments, in turn, are divided into the following types:
- Debt securities that have value - they are given to investors by the managers and directors of the project, in which the latter undertake to pay dividends and interest upon completion of certain work and receipt of profit from the implementation of the project;
- Securities with value are documents that provide a guarantee that the investor has contributed capital and the funds will be paid upon maturity.
How are they carried out?
Portfolio investments are made to a greater extent with foreign countries, whose development is at a fairly high level. Behind last years there is a net outflow of investment from developing countries. This indicator does not reflect very well on the domestic economy of a country. Despite such problems, international organizations continue to buy securities of other countries.
Foreign portfolio investment is an investment in securities produced outside a specific country. In this case, the investor cannot control the investment object.
Portfolio investments are carried out in the form of trading in securities, which should bring sufficient profit to its investor, as well as success to the developing project.
What nuances hinder the implementation of portfolio investments?
Like any business, a business cannot exist without the support of partners and investors. To carry out portfolio investments, investments of funds are required, and quite a lot. And attracting oligarchs who could become investors is not very easy. It takes a lot of time to find these same people who will agree to invest their capital in the development of the project.
The next difficulty in making portfolio investments is retaining existing investors, as well as attracting new ones. This requires proving that your project will bring good profits in any case, and also minimizes the risk of loss financial resources. A company that has been on the market for at least five years is considered ideal for an investor.
To interest an investor, you need to do titanic work - learn the psychology of investors, analyze your weaknesses and find an explanation for them with motivation to improve the situation, and also adhere to the following points in negotiations:
- It is necessary to talk about investors who have already invested their capital and continue to participate in life cycle project. This must be done based on specific positive facts of cooperation. If there are few of them, you need to clearly formulate the prospect of working together.
- Show that the company's shares are not subject to the risks that may arise in the event of a crisis. To do this, it is necessary to work on several areas of doing business, ranging from currency exchange rate fluctuations to market relations.
- Convince the investor of the advisability of investing capital in the project. Here it is important to draw up in advance the positive points that will arise when working with your company. Based on the psychological characteristics of the participants in the negotiations, you need to present these points in such a way that future partners have no doubts about concluding financial agreements with you.
Portfolio investors - who are they?
These are people who donate their capital to the development of the project. They are interested in maximizing profits from securities, and not in the control of the company itself, as previously stated.
Portfolio investors include pension funds, Insurance companies, investment funds and in some cases just private individuals. But not all individuals use this type of investment. After all, every owner does not want to give away some capital to other people without their own control over the process of project implementation. Therefore, portfolio investors in most cases are organizations.
The positive aspects of such investments
Portfolio investment is an investment of capital in a specific project that expects to make a profit in the future. In turn, investors should focus not only on profit, since a lot of work needs to be done before making a profit. And the positive aspects for investments should be:
- Small risks for investing, which are directly ensured by diversification of assets. Assets must be at a sufficient level and meet the design conditions.
- Fund management at the highest level. If the workers are sufficiently qualified, the project will definitely be successful, since they can initially analyze and see the outcome of the results obtained in any situation. Therefore, it is important to attract highly qualified specialists in a specific field of knowledge to implement the ideas.
- There are no tax costs, since the profit received can be left in the accounts of the investment fund, as well as poured into subsequent projects or other profitable organizations.
The concept of portfolio investment is widely used in modern world. The essence of this concept is investing money in a profitable business, as a result of which the investor makes a profit. Portfolio investments have a number of positive aspects that directly affect the attraction of new investors. IN Lately we are seeing a trend towards direct investment as the person who invests cash, wants to personally control the process of implementing a specific project. At the same time, he selects personnel, trains them (if necessary), and manages the financial remuneration of employees.
Portfolio investment
(Portfolio investment)
Portfolio is a collection of securities owned by one investor, invested in business activities in order to generate income.
Definition, classification and types of portfolio investments, risks associated with portfolio investments, the role of international portfolio investments in the development of the Russian economy
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Portfolio investment is, definition
Portfolio investments are investments in securities for the purpose of subsequent gambling on a change in exchange rate or receiving a dividend, as well as participation in the management of a business entity. Portfolio investment do not allow the investor to establish an effective one over the enterprise and do not indicate the presence of investor long-term interest in development enterprises.
The portfolio is a certain set of corporate shares, bonds with varying degrees of collateral and risk, as well as securities with a fixed benefit guaranteed by the state, i.e. with minimal risk losses on principal and current income. Theoretically, a portfolio can consist of securities of one type, and also change its structure by replacing some securities with others. However, each security alone cannot achieve such a result. The main objective of portfolio investment is to improve investment conditions by giving the aggregate valuable papers such investment characteristics that are unattainable from the perspective of a single security and are possible only with their combination.
In the most general terms investments are defined as cash, bank deposits, shares and other securities invested in objects entrepreneurial activity or other activities in order to generate income and achieve a positive social effect.
By financial definition portfolio investment represent all types of funds invested in economic activity in order to obtain income.
Portfolio investment allows you to plan, evaluate, and control the final results of all investment activities in various segments of the stock market.
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Thus, the securities portfolio is the instrument with which investor the required stability is ensured income with minimal risk.
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None of the investment values has all the properties listed above. Therefore, a compromise is inevitable. If reliable, it will be low, since those who prefer reliability will offer high price and they'll shoot you down profitability.
The main goal when forming a portfolio is to achieve the most optimal combination between risk and profit for the investor. In other words, the appropriate set of investment instruments is designed to reduce the investor’s risk to a minimum and at the same time increase his income to the maximum.
The main question when managing a portfolio is how to determine the proportions between securities with different properties. Thus, the main principles for constructing a classic conservative (low-risk) portfolio are: the principle of conservatism, the principle of diversification and the principle of sufficient liquidity.
Portfolio investment is
When forming a portfolio, you should be guided by:
Security of investments (invulnerability from events on market capital);
- Liquidity investment (ability to convert into cash money or product).
Portfolio investment is
Such properties in in full does not have any investment value. If the security is reliable, then profitability will be low, since those who prefer reliability will offer high price and bring down profitability. The main goal when forming is to achieve a compromise between risk and profit for the investor.
Regular income investment portfolio
The regular income portfolio is formed from highly reliable securities and brings average income with a minimum level of risk. A portfolio of income securities consists of high-yield corporate bonds, securities that generate high income with an average level of risk.
The formation of this type of portfolio is carried out in order to avoid possible losses in the stock market both from a fall in market value and from low dividend or interest payments. One part financial assets included in this portfolio brings growth to the owner capital value, and the other is income. The loss of one part can be compensated by the increase of another.
Types of investment portfolios
The type of investment portfolio depends on the relationship between two main indicators: the level of risk that the investor is willing to bear and the level of desired return on investment.
Portfolio investment is
The investment portfolio by type is divided into:
Portfolio investment is
Moderate investment portfolio;
Aggressive investment portfolio.
Portfolio investment is
Conservative investment portfolio
In a conservative portfolio, the distribution of securities usually occurs as follows: a large part is bonds (reduce risk), a smaller part is shares of reliable and large Russian enterprises (provide profitability) and bank deposits. A conservative investment strategy is optimal for short-term investing and is a good alternative bank deposits, since on average bond mutual funds show annual returns of 11 - 15% per annum.
Moderate investment portfolio
A moderate investment portfolio includes:
Shares of enterprises;
Government and corporate bonds.
Typically, the proportion of stocks in a portfolio is slightly higher than the proportion of bonds. Sometimes a small portion of the funds may be invested in bank deposits. A moderate investment strategy is optimal for short- and medium-term investing.
Aggressive investment portfolio
An aggressive investment portfolio consists of high-yielding stocks, but also includes bonds for diversification and risk reduction purposes. An aggressive investment strategy is best for long-term investing, as such investments for a short period of time are very risky. But over a period of time of 5 years or more, investing in shares gives very good results (some mutual funds of shares have demonstrated a return of more than 900% over 5 years!).
Formation and profitability of the investment portfolio
portfolio profitability. The expected return of a portfolio is understood as the weighted average of the expected returns of the securities included in the portfolio. In this case, the “weight” of each security is determined by the relative amount of money allocated by the investor to purchase this security.
Portfolio risk is explained not only by the individual risk of each individual security in the portfolio, but also by the fact that there is a risk that changes in the observed annual returns of one stock will affect changes in the returns of other stocks included in the investment portfolio.
The key to solving the problem of choice optimal portfolio lies in the theorem on the existence of an efficient set of portfolios, the so-called efficiency frontier. The essence of the theorem comes down to the fact that any investor must choose from the entire infinite set of portfolios a portfolio that:
Provides maximum expected return at each risk level;
Provides minimum risk for each value of expected return.
The set of portfolios that minimize the level of risk for each expected return form the so-called efficient frontier. Effective portfolio- this is a portfolio that provides minimal risk for a given value of the arithmetic average level of return and maximum return for a given level of risk.
To compile an investment portfolio you need:
Formulating the main goal and determining priorities (maximizing profitability, minimizing risk, preserving and increasing capital);
Selection of investment attractive securities that provide the required level of profitability and risk;
Search for an adequate ratio of types and types of securities in the portfolio to achieve the set goals;
Monitoring the investment portfolio as its main parameters change;
Principles for forming an investment portfolio:
Ensuring security (insurance against all kinds of risks and stability in income generation);
Portfolio investment is
Achieving a return acceptable to the investor;
Achieving an optimal balance between profitability and risk, including through portfolio diversification.
Formation and control portfolio in order to obtain high regular income. The best way to achieve this goal is to simply buy reliable and relatively high-yielding bonds and hold them until maturity.
There are a number of ways to construct portfolios, solving the problem accumulation of a given amount of money, including by assigning the amounts received to specific payments and through immunization.
Portfolio prescription is a strategy in which the investor's goal is to create a portfolio of bonds with an income pattern that completely or nearly completely matches the structure of the upcoming payments.
The portfolio is considered immunized if one or more of the following conditions are met:
The actual annual geometric average return for the entire planned investment should be, according to at least, not lower than the yield to maturity that was during the formation of the portfolio;
The accumulated amount received by the investor at the end of the holding period is at least no less than what he would have received had he placed the initial investment amount in bank at a percentage equal to the initial yield to maturity of the portfolio, and investing all intermediate coupon payments at the rate of interest to maturity;
Portfolio investment is
The present value of the portfolio and its duration are equal to the present value and duration of those mandatory payments, for the sake of which the portfolio was created.
The simplest way to immunize a portfolio is to purchase zero-coupon bonds whose maturity is equal to the scheduled period and whose total par value at maturity matches the investor's goal.
Formation and control portfolio in order to increase the total return. Usually, two possible strategies for increasing the total return are considered:
portfolio transformation based on a forecast of future interest rate changes.
Ways to make portfolio investments
Portfolio investing can be carried out personally - this requires the investor to constantly monitor the composition of his own portfolio, its level of profitability, etc. A more preferable way is portfolio investing using an investment fund. The advantages of such portfolio investment:
Ease of investment portfolio management and lower maintenance costs;
Diversification of portfolio investments and, accordingly, reducing investment risks;
Higher investment returns and cost minimization due to fund economies of scale;
- Decline intermediate taxation - income received from portfolio investment remains in the fund and increases the investor’s assets without additional payment of income tax. All tax obligations the investor's interest comes after receiving payments from the fund.
Choosing a method for profitable investment of his money, the investor certainly pursues main goal- ensure the future of your family, quickly make a large profit or guarantee the safety of your funds without any claims to a high income.
What kind of investment portfolio can there be?
Portfolio investment is
The portfolio must be:
Firstly, it can be highly profitable (we mean high returns on current investments);
Secondly, the portfolio can be with an average benefit (this is a more reliable type of investment with constant profit);
Thirdly, the investment portfolio can be mixed, that is, combined (an excellent way to reduce your risks and invest money in the securities of several companies that differ in both the level of profitability and the degree of riskiness).
The main advantage of such investment is the ability for the investor to choose the country for investment, where optimal income will be provided, with minimal risks.
However, no matter what form of portfolio investment you choose, you are unlikely to be able to manage without a highly qualified consultant in this matter. The better you prepare and calculate all the nuances of investing, the more likely your financial success is.
This investment can also be used as a means of protection against inflation.
When forming portfolio investments, investors make decisions taking into account only two factors: expected return and risk. The risk associated with investing in any risky financial instrument can be divided into two types:
Systematic;
Portfolio investment is
Unsystematic.
Systematic risk of portfolio investments
Systematic risk arises from general market and economic changes, affecting all investment instruments and not unique to a particular asset.
Systematic risk cannot be reduced, but the market impact on financial asset returns can be measured. As a measure of systematic risk, the beta indicator is used, which characterizes the sensitivity of a financial asset to changes in market returns. Knowing its value, it is possible to quantify the amount of risk associated with price changes in the entire market as a whole. The higher this value for a stock, the more it grows when the overall market rises, but vice versa - they fall more when the market as a whole falls.
Systematic risk is due to general market reasons - the macroeconomic situation in the country, the level business activity in financial markets. The main components of systematic risk are:
Risk legislative changes- the risk of financial losses from investments in securities due to changes in their market value caused by changes in legislative norms.
decline purchasing power ruble leads to a fall in investment incentives;
Inflation risk arises due to the fact that at high rates inflation the income investors receive from securities is provided at a faster rate than it will increase in the near future. World experience confirms that high inflation destroys securities.
Portfolio investment is
Interest rate risk - losses of investors due to changes in interest rates on the market;
Interest rate risk is the losses that investors may incur due to changes in interest rates on the credit market. Banking growth interest rate leads to a decrease in the market value of securities. With a low increase in interest rates on deposit accounts, a massive dumping of securities issued at more than low interest. These securities, according to the terms of the cash issue, can be returned to the issuer ahead of schedule.
Structural and financial risk is a risk that depends on the ratio of own and borrowed money in the structure financial resources issuer enterprise.
The higher the share of borrowed funds, the higher the risk of shareholders being left without dividends. Structural and financial risks are associated with transactions in the financial market and production and economic activities of the enterprise - issuer and include: credit risk, interest rate risk, currency risk, risk of lost financial profit.
Portfolio investment is
Portfolio investment is
Currency risks of portfolio investments are associated with investments in foreign currency securities and are caused by exchange rate changes foreign currency. Investor losses arise due to an increase in national currency in relation to foreign currencies.
Unsystematic risk of portfolio investments
Reducing unsystematic risk can be achieved by compiling a diversified portfolio from a sufficiently large quantity assets. Based on the analysis of the performance of individual assets, it is possible to assess the profitability and risk of investment portfolios made up of them. In this case, it does not matter what investment strategy the portfolio is oriented towards, be it a market-following strategy, rotation of industry sectors, bullish or bearish play. Risks associated with the formation and management of a securities portfolio are usually divided into two types.
The unsystematic risk associated with a particular security. This type of risk can be reduced through diversification, which is why it is called diversifiable. It includes such components as:
Selective - the risk of incorrect selection of securities for investment due to an inadequate assessment of the investment qualities of the securities;
Selective risk - the risk of loss of income due to the wrong choice of a particular security issuer when forming a portfolio of securities. This risk is associated with assessing the investment qualities of a security.
Temporary risk - associated with untimely purchase or sale of a security;
Time risk - the risk of buying or sales securities at the wrong time, which inevitably entails losses for the investor. For example, seasonal fluctuations in securities of trading and agricultural processing enterprises.
Liquidity risk - arises due to difficulties in selling portfolio securities at an adequate price;
Liquidity risk is associated with the possibility of losses when selling securities due to changes in their quality. This type risk is widespread in the stock market Russian Federation when securities are sold at a rate lower than their actual value. Therefore, the investor refuses to see them as reliable product.
Credit risk inherent in debt securities and due to probability that it turns out to be unable to fulfill obligations to pay interest and par debt;
Credit or business risk is observed in a situation where the issuer that issued debt (interest-bearing) securities is unable to pay interest or principal on them debt. The credit risk of the issuing corporation requires attention from both financial intermediaries and investors. Financial position the issuer is often determined by the ratio between borrowed and own funds in the liabilities side of the balance sheet (coefficient financial independence). The higher the share of borrowed funds in passive balance, the higher probability for shareholders to remain without dividends, since a significant part of the income will go away jar as interest on a loan. In case of bankruptcy such corporations most of the proceeds from sales assets will be used to pay off debt borrowers- banks.
Recall risk - related to possible conditions issue of securities bonds, when the issuer has the right to call (repurchase) bonds from their owner before maturity. Enterprise risk - depends on financial condition enterprises - issuers of securities;
With call risk, possible losses for the investor if the issuer calls its bonds from the stock market due to the excess of the fixed level of income on them over the current market interest.
The risk of delivery of securities under futures is associated with a possible failure to fulfill obligations on a timely basis. delivery securities held by the seller (especially when conducting speculative transactions with securities), i.e., during short sales.
Operational risk - arises due to disruptions in the operation of systems involved in the securities market.
Operational risk is caused by problems in work computer networks processing information related to securities, low level qualifications of technical personnel, violation of technology, etc.
Methods for reducing the risk of portfolio investment management
The design of a particular portfolio may achieve different goals, for example, providing the highest return for a given level of risk or, conversely, providing the lowest risk for a given level of return.
Portfolio investment is
However, since portfolio investors are engaged more or less long-term investments and manage quite a large amount of capital, then in the conditions of our economy the most likely task is to minimize risk while maintaining stable level income.
The higher the risks in the securities market, the more demands are placed on the portfolio manager regarding the quality of portfolio management. This problem is especially relevant if the securities market is volatile. Management means the application to a set of different types of securities of certain methods and technological capabilities that allow: to preserve the original invested funds; reach the maximum level of income; ensure the investment focus of the portfolio. In other words, process management is aimed at preserving the basic investment quality of the portfolio and those properties that would correspond to the interests of its holder.
From the point of view of portfolio investment strategies, the following pattern can be formulated. The type of portfolio also corresponds to the type of investment strategy chosen: active, aimed at maximizing the use of market opportunities, or passive.
The first and one of the most expensive, time-consuming controls is monitoring, which is a continuous detailed analysis stock exchange, trends in its development, sectors of the stock market, investment qualities of securities. The ultimate goal of monitoring is to select securities that have investment properties appropriate for a given type of portfolio. Monitoring is the basis of both active and passive method management.
Portfolio investment is
To reduce the level of risk, there are usually two management methods:
Active management;
Passive control.
Portfolio investment is
Active investment portfolio management model
Active management is management that is associated with constantly monitoring the securities market, acquiring the most effective securities, and getting rid of low-yielding securities as quickly as possible. This type involves a fairly rapid change in the composition of the investment portfolio.
The active management model involves careful monitoring and immediate acquisition of instruments that meet the investment objectives of the portfolio, as well as rapid changes in the composition of the equity instruments included in the portfolio.
The domestic stock market is characterized by sharp changes in quotes, dynamic processes, high level risk. All this allows us to assume that his condition is adequate to an active monitoring model, which makes portfolio management effective.
Monitoring is the basis for predicting the size possible income from investment funds and intensification of operations with securities.
Manager An active manager must be able to track and acquire the best-performing securities and dispose of underperforming assets as quickly as possible.
At the same time, it is important to prevent a decrease in the value of the portfolio and loss of investment properties, and therefore, it is necessary to compare the cost, profitability, risk and other investment characteristics of the “new” portfolio (that is, take into account newly acquired securities and sold low-yield ones) with similar characteristics of the existing “old” portfolio.
This method requires significant financial expenses, since it is associated with information, analytical expert and trading activity in the securities market, in which it is necessary to use a wide base of expert assessments and conduct independent analysis, carry out forecasts the state of the securities market and the economy as a whole.
Only large banks can afford it or financial companies with a large portfolio of investment securities and seeking to obtain maximum income from professional work On the market.
Portfolio investment is
Passive model of investment portfolio management
Passive management involves the creation of well-diversified portfolios with a predetermined level of risk, designed for the long term.
This approach is possible if the market is sufficiently efficient and saturated with good quality securities. The duration of the portfolio's existence presupposes the stability of processes in the stock market.
Portfolio investment is
In conditions of inflation, and, consequently, the existence of mainly a market for short-term securities, as well as unstable market conditions stock exchange, this approach seems ineffective: passive management is effective only in relation to a portfolio consisting of low-risk securities, and their domestic market A little. Securities must be long-term in order for the portfolio to exist in an unchanged state for a long time. This will allow you to realize the main advantage of passive management - low level of overhead costs for goods. Dynamism Russian market does not allow the portfolio to have a low turnover, since the loss of not only income, but also value is large.
Portfolio investment is
An example of a passive strategy would be an even distribution of investments between money issues of varying urgency (the “ladder” method). Using the portfolio ladder method manager buys securities of various maturities with distribution by maturity until the end of the portfolio's lifespan. It should be borne in mind that a securities portfolio is a product that is bought and sold on the stock market, and therefore, the issue of the costs of its formation and management is very important. Therefore, the question of the quantitative composition of the portfolio is of particular importance.
Passive management is the management of an investment portfolio that leads to the formation of a diversified portfolio and its preservation over a long period of time.
If there are 8-20 different securities in the portfolio, the risk will be significantly reduced, although a further increase in the number of securities will no longer have such an impact on it. A necessary condition for diversification is a low level of correlation (ideally - negative correlation) between changes in security quotes. For example, purchasing shares of RAO UES Russian Federation" and Mosenergo are unlikely to be effective diversification, since the shares of these companies are closely related to each other and behave approximately the same.
Portfolio investment is
There is a way to minimize risk through “risk hedging.”
Portfolio investment is
Risk hedging- this is a form of price and profit insurance when making futures transactions, when salesman() simultaneously purchases (sells) the corresponding number of futures contracts.
Risk hedging allows businessmen to insure themselves against possible losses by the time the transaction is liquidated for a period of time, provides increased flexibility and efficiency commercial transactions, reducing the costs of financing trade in real goods. risk allows you to reduce the risk of the parties: losses from changes in product prices are compensated by gains on futures.
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The essence of risk hedging is the purchase of forward futures contracts or options (opening a forward position) economically related to the content of your investment portfolio. In this case, profits from transactions with futures contracts should fully or partially compensate for losses from the fall in the price of securities in your portfolio.
Portfolio investment is
One of the methods for hedging portfolio risk is the acquisition financial instruments(assets) with returns opposite to existing investments in the same market. A clear example hedging the risk of financial instruments on the futures exchange is the acquisition of futures and options contracts. On the foreign exchange stock exchange it looks like this. If the investor has currency for sale, then either the sale of part of the available currency is carried out at more favorable exchange rate with its further acquisition when its price falls, or additional currency is purchased at a low price for its further sale at a higher price. Risk hedging always involves costs, as additional investments must be made to reduce risks.
International Portfolio Investments
Foreign portfolio investment is the investment of investors' funds in securities of the most profitable enterprises, as well as in securities issued by state and local authorities in order to obtain maximum income on invested funds.
Portfolio investment is
A foreign investor does not actively participate in the management of the enterprise, takes the position of a “third-party observer” in relation to the enterprise - the investment object and, as a rule, does not interfere in its management, being content with receiving dividends.
The main motive for international portfolio investment is the desire to invest capital in the country and in such securities in which it will bring maximum profit for an acceptable level of risk. Portfolio investments are sometimes seen as a means of protecting funds from inflation and generating speculative income.
Portfolio investment is
The goal of a portfolio investor is to obtain a high rate of profit and reduce risk by hedging risk. Thus, the creation of new assets does not occur with this investment. However, portfolio investments allow you to increase the amount of capital attracted to the enterprise.
Such investments are predominantly based on private entrepreneurial capital, although governments often purchase foreign securities.
More than 90% of portfolio foreign investment are carried out between developed countries and are growing at a rate significantly faster than direct investment. The outflow of portfolio investment by developing countries is very unstable, and in some years there was even a net outflow of portfolio investment from developing countries. International organizations are also actively purchasing foreign securities.
Intermediaries in foreign portfolio investments are mainly investment banks, through which investors gain access to the national market of another country.
Portfolio investment is
The international portfolio investment market is significantly larger in volume international market direct investment. However, it is significantly smaller than the total domestic portfolio investment market of developed countries.
Thus, foreign portfolio investments are investments of capital in foreign securities that do not give the investor the right to real control over the investment object. These securities can be either equity securities, certifying the property right of their owner, or debt securities, certifying a loan relationship. The main reason for making portfolio investments is the desire to place capital in the country and in such securities in which it will bring maximum profit at an acceptable level of risk.
International portfolio investments are classified as they appear in the balance of payments. They are divided into investments:
Equity securities - traded on the market monetary document certifying the property right of the owner of the document in relation to the person who issued this document;
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Debt securities are a marketable monetary document that certifies the loan relationship of the owner of the document in relation to the person who issued this document.
Portfolio investment is
Shareholder securities
Thus, international diversification of investments into stocks and bonds simultaneously offers an even better return-risk trade-off than either one alone, as evidenced by many empirical studies. In general, optimal international asset allocation increases investment returns without the investor taking over greater risk. However, there is enormous opportunity in constructing the optimal portfolio to generate higher risk-adjusted returns.
In the modern world, as barriers to international capital flows are lowered (or even removed, as in developed countries), and the latest communications and processing technologies data provide low-cost information on foreign securities, international investing contains a very high potential for simultaneous profitability and management financial risks. Passive international portfolios (which are based on market capitalization weights published by many world-renowned financial publications) improve risk-adjusted returns, but an active strategy to construct an optimal portfolio has the potential to give the professional investor much more. In the latter case, the investment strategy bases the portfolio proportions of domestic and foreign investment on expected benefits and their correlations with a common portfolio.
Portfolio investment is
Debt securities
Debt securities are a marketable monetary document that certifies the credit relationship of the owner of the document in relation to the person who issued this document. Debt securities can be in the form of:
Bonds, promissory note, promissory note - monetary instruments giving their holder an unconditional right to a guaranteed fixed monetary approach or to a variable one determined by agreement cash income;
Instrument money market- monetary instruments that give their holder an unconditional right to a guaranteed fixed cash income on a certain date. These instruments are sold on the market at a discount, the amount of which depends on the size interest rate and the time remaining until maturity. These include treasury bills, certificates of deposit, bankers' acceptances, etc.;
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Financial derivatives - having market price derivative monetary instruments that satisfy the owner's right to sell or purchase primary securities. These include options, futures, warrants, and swaps.
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For the purpose of accounting for the international movement of portfolio investments in balance of payments The following definitions are accepted:
Note/IOU - short-term monetary instrument(3-6 months), produced creditor in its own name under an agreement with the bank guaranteeing its placement on the market and the acquisition of unsold notes, the provision of reserve loans;
- Option- a contract giving to the buyer the right to buy or sell a specified security or product at a fixed price after a specified time or on a specified date. Buyer pays his bonus to the seller in return for his obligation to exercise the above right;
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At the same time, the share of portfolio investments attributable to small and medium-sized Russian enterprises is quite low. This is caused high risks investing in such companies, which significantly complicates their attraction of foreign investment
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Attracting foreign portfolio investment is also Russian economy the most important task. With the help of funds from foreign portfolio investors, it is possible to solve the following economic tasks:
Replenishment equity Russian enterprises for the purpose of long-term development by placing shares of Russian joint stock companies among foreign portfolio investors;
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Accumulation of borrowed funds by Russian enterprises for the implementation of specific projects by placing debt securities of Russian issuers among portfolio investors;
Replenishment of federal and local budgets subjects of Russia by placing among foreign investors debt securities issued by the relevant authorities authorities;
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Effective restructuring external debt Russia by converting it into state. bonds with their subsequent placement among foreign investors.
The main flows attracted to Russian Federation foreign portfolio investments are:
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Investments of portfolio investors in shares and bonds of Russian joint-stock companies, freely traded in Russian and foreign market valuable papers;
Investments of foreign portfolio investors in foreign and domestic debentures Russia, as well as securities issued by federal subjects;
Portfolio investment in real estate.
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Problems of optimal achievement of investment goals
The Russian market is still characterized by negative features that prevent the application of the principles of portfolio investment, which to a certain extent restrains the interest of market participants in these issues.
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First of all, it should be noted that it is impossible to maintain normal statistical series for most financial instruments, that is, the lack of historical statistical base, which makes it impossible to use in modern Russian conditions classical Western methods, and indeed any strictly quantitative methods of analysis and forecasting.
The next general problem is the problem of internal organizations those structures involved in portfolio management. As experience in communicating with our clients, especially regional ones, shows, even in many there are quite large banks The problem of ongoing monitoring of one's own portfolio (not to mention management) has still not been solved. In such conditions, it is impossible to talk about any more or less long-term planning for the development of the bank as a whole.
Although it should be noted that recently many banks have created departments and even portfolio investment departments, this has not yet become the norm, and as a result separate divisions banks are not aware of the general concept, which leads to reluctance, and in some cases, to the loss of the ability to effectively manage both a portfolio of assets and liabilities bank and client portfolio.
Regardless of the chosen level of forecasting and analysis, to set the task of portfolio formation, a clear description of the parameters of each instrument is necessary financial market separately and the entire portfolio as a whole (that is, a precise definition of such concepts as profitability and reliability individual species financial assets, as well as specific instructions on how to calculate the profitability and reliability of the entire portfolio based on these parameters). Thus, it is necessary to define profitability and reliability, as well as predict their dynamics in the near future.
In this case, two approaches are possible: heuristic - based on approximate forecast dynamics of each type of asset and analysis of the portfolio structure, and statistical- based on constructing the probability distribution of profitability of each instrument separately and the entire portfolio as a whole.
The second approach practically solves the problem of forecasting and formalizing the concepts of risk and profitability, however, the degree of realism of the forecast and the probability of error in drawing up the probability distribution are strongly dependent on the statistical completeness of the information, as well as the market’s exposure to changes in macro parameters.
After describing the formal parameters of the portfolio and its components, it is necessary to describe all possible models of portfolio formation, determined by the input parameters specified by the client and the consultant.
The models used may have various modifications depending on the client’s task. The client can create both a fixed-term and an open-ended portfolio.
Term securities, as you can guess from their name, have a certain validity period or, as economists say, a “lifespan”, after which either dividends are paid or the security is cancelled, depending on its type. At the same time, fixed-term securities are divided into three subtypes: short-term, medium-term and long-term. Short-term securities are a type of securities whose validity period is limited to 1 year; medium-term ones have a “lifespan” of five or ten years, while long-term ones have a “lifespan” of approximately 20 to 30 years.
Perpetual securities are the most common type of securities, which traditionally exist in documentary “paper” form. Perpetual securities have no restrictions on the period of their circulation, since it is not regulated by anything. These securities exist “forever” or until they are redeemed. At the same time, the repayment period itself is also not regulated upon issue.
At the same time, economic development around the world has led to the fact that even perpetual securities began to be issued in book-entry form, that is, exclusively in the form of a register of owners. Such a solution sometimes significantly simplifies the system of control over the circulation of securities.
The portfolio can be replenished or withdrawn.
Portfolio replenishment is understood as an opportunity within the framework of an existing agreements increase the monetary expression of the portfolio due to external sources that are not a consequence of the increase in the initially invested aggregate of the money supply.
Portfolio revocability is the ability, within the framework of a valid agreement, to withdraw part of the funds from the portfolio. Replenishment and recall can be regular or irregular. The portfolio is replenished regularly if there is a schedule for the receipt of additional funds approved by the parties. Model modifications can also be determined by risk restrictions specified by the client.
It is also appropriate to introduce a restriction on the liquidity of the portfolio (it is introduced in the event that the client has an urgent need to dissolve the entire portfolio, unforeseen in the contract). Liquidity level is defined as the number of days required for full conversion all portfolio assets into cash and transferring them to the client’s account.
The next block of problems is directly related to solving optimization problems. It is necessary to decide on the main optimization criterion in the portfolio formation procedure. As a rule, only profitability and risk (or several types of risks) can act as target functions (criteria), and all other parameters are used as restrictions.
When forming a portfolio, three main formulations of the optimization problem are possible:
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- objective function - profitability (the rest is in restrictions);
- objective function - reliability (the rest is limited);
- two-dimensional optimization according to the parameters “reliability-profitability” with subsequent study of the optimal set of solutions.
It often happens that a small decrease in the value of one criterion can be sacrificed for the sake of a significant increase in the value of another (with one-dimensional optimization there are no such possibilities). Naturally, multidimensional optimization requires the use of more complex mathematical apparatus, but the problem of choosing mathematical methods for solving optimization problems is a topic for a separate discussion.
Sources and links
ru.wikipedia.org - Wikipedia, The Free Encyclopedia
finic.ru - Finance and loan
Legal Encyclopedia More details, V. R. Evstigneev. The monograph examines various strategies of portfolio investors in the developed (American) and developing domestic stock market. The author shows that the specifics of the developing...
Investments in securities that make up the company’s investment portfolio, financial institution or an individual.
Portfolio investments are indirect. Unlike direct investments, which allow you to participate in the management of the issuing organization, portfolio investments involve passive ownership of financial assets to generate profit. Investments in which the share of participation in the share capital (authorized) capital of the enterprise is less than 10% are considered portfolio investments.
Types of portfolio investments
Depending on the nature of the financial relationship between the investor and the issuer, the following types of securities are distinguished:- equity securities that secure the right to own a share of ownership in the capital and receive periodic profits (dividends). These investments include stocks, exchange-traded funds, mutual funds, etc.;
- debt securities certifying the provision of funds by the investor and the obligation of the borrower to repay the debt in fixed time. This type of investment includes government and corporate bonds, treasury bills, promissory notes, deposits, savings, and trust certificates;
- derivative securities (derivatives) that fix the right to buy or sell a specific asset (commodity, financial instrument). Derivatives include warrants, orders, options, futures, forward contracts, and depositary receipts.
Properties of portfolio investments
When choosing assets for stock market To create an investment portfolio, the investor must take into account:- Risk. The purchase of securities is accompanied by the possibility that they will not bring the expected income. The greater the risk, the higher the return or interest rate. Investors choose investments based on their risk tolerance.
- Profitability. Investors buy securities for capital gains and therefore take into account the ability of financial instruments to generate income. They receive profit from investments in the form of interest, dividend payments and additional income, which is the difference between the purchase and sale price of the asset (exchange difference). Profitability is assessed by calculating volatility (price variability);
- Liquidity. Investors consider the liquidity of financial instruments, which shows how quickly an asset turns into cash. The higher the liquidity of the resource, the more profitable it is for the investor, since the asset can be quickly sold. Portfolio investments typically involve transactions in highly liquid securities.
Diversification of the investment portfolio
Reducing the risk of losing investments is achieved by diversifying the investment portfolio. This process consists of acquiring different types financial assets issued by issuers. A fall in the price of one asset is offset by an increase in the price of another, as the risk of capital loss is spread across the portfolio. Savers are also diversifying their portfolios with foreign investments.Portfolio investments involve the involvement of intermediaries. Funds, commercial banks, insurance companies, and brokers provide services for conducting stock transactions, including the placement of investor capital and portfolio management.
The classification of investments by investment purpose divides them into direct and portfolio investments. Direct investments are aimed at acquiring real assets with the condition that the investor participates in their management. The essence of portfolio investing is the acquisition of securities, possibly the same real assets in the form of shares, to generate income. A portfolio investor does not participate in the management process of the enterprises whose shares he has acquired.
When purchasing company shares or other securities, an investor always runs the risk of not receiving the expected income, and sometimes even the invested capital. are great if an investor buys shares of one or two companies, since the securities market reflects the real processes of production and sales of the products of these companies, which are influenced by many factors, negative or positive. An investor may not have time to sell shares at a favorable price if negative factors influence the business of the companies whose shares he purchased. He may not even know about them, but will find out only after their price has fallen.
To reduce risks, the investor creates an investment portfolio that includes shares of various companies with varying degrees of risk and varying levels of profitability. The concept of an investment portfolio is associated with the idea of an ordinary portfolio filled with securities (shares) of various companies.
The investment portfolio is also remarkable in that it can constantly change depending on the conditions of the securities market, maintaining the level of profitability without changing the degree of risk.
Investment portfolio and investors
- conservative investors;
- moderately aggressive;
- aggressive investors.
An investor's portfolio most often reflects his character and essence, if we are talking about an investor - an individual.
If we are talking about an investor - legal entity, then the formation of an investment portfolio depends on the tasks facing the enterprise. Common to them are the principles of forming an investment portfolio - the ratio of profitability and risk: with a low level of profitability; moderately risky investments with guaranteed returns; investments with a high degree of risk and maximum profitability.
Types of investment portfolios
- conservative;
- moderate;
- aggressive.
The conservative one consists of government securities, blue chip shares, gold and ensures high protection of the components and the portfolio as a whole, and the profitability of the investment portfolio is maintained at the level required by the investor.
Aggressive is stocked with high-yield securities, including their derivatives. These securities have a fairly high degree of risk. Therefore, the investor actively manages his portfolio or is in constant contact with the broker managing his portfolio.
Moderately balanced, optimization of the investment portfolio in terms of profitability and degree of risk is its characteristic feature. Such a portfolio contains both high-yield securities with a high degree of risk and low-yield reliable securities, such as government bonds.
Types of investment portfolios
The types of investment portfolios depend on the purpose of forming the investment portfolio.
- If the investor's goal is rapid capital growth, he creates a growth portfolio.
- If the goal is a quick return on investment, then a liquidity portfolio is formed.
- The investor's goal is guaranteed fixed income, an income portfolio is formed consisting of shares of large oil companies, companies in the gas sector of the economy and large energy companies.
In addition, portfolios can be formed from regional securities or shares of companies in the same industry. Investment portfolios made up of foreign securities are also formed - portfolio foreign investments.
Formation of an investment portfolio
Stages of investment portfolio formation:
- Definition of yourself as an investor: conservative, moderate or aggressive investor.
- Determining the investment goal: maximum profitability, minimum risk, rapid capital growth, quick return on investment, or a combination of these goals.
- Analysis of the securities market based on investment goals.
- Selection of securities and determination of their ratio for a given level of profitability and minimum degree of risk.
- Purchase of securities and the beginning of ongoing monitoring of the formed portfolio.
Portfolio investment management
Portfolio investments formed in this way can be managed by the investor directly or transferred to trust management brokerage company. Transfer to trust management does not mean a complete transfer of rights to manage the portfolio. A change in the composition of the portfolio, an increase or decrease in the value of portfolio assets occurs with mandatory agreement with the investor.
The essence of portfolio management for an investor is to maintain its profitability at a certain level. There are two main approaches here:
- Formation of a highly diversified portfolio with a given level of income/risk ratio.
- Formation of a highly profitable portfolio with a high level of risk.
In the first case, investor participation in management is associated with determining the level of income/risk ratio over long periods of time and making the necessary adjustments to the portfolio composition. This type of control is called passive. But this name does not reflect the essence of management. The world's most famous portfolio investor, Warren Buffett, practices this type of investment management and makes billions of dollars. The main thing, in his opinion, is to choose the right composition of portfolio investments, see the long-term prospect of their growth, have patience and wait, not paying attention to the periodic instability of the securities market.
In the second case, portfolio management is called active. An analysis of the income/risk ratio is carried out daily; based on the analysis, the composition of securities is adjusted, some are sold and others are purchased. The sale of some securities is possible provided that they have high liquidity. With an active approach to managing portfolio investments, the level of operating costs is quite high, which reduces the efficiency of investments; the portfolio investor also takes this into account. All this requires excellent knowledge of the securities market, knowledge of fundamental and technical analysis market, in a word, a high professional level of a portfolio investor.
With any approach to managing an investment portfolio, the success of an investor depends on his knowledge of the securities market, fundamental processes in the economy not only of his country, but also in the global economy, and skillfully applying this knowledge.
Portfolio investing is one of the priority areas V investment sphere activities. Portfolio investments are made every day all over the world in enormous amounts. You can also start this interesting and highly profitable activity. Start and see how profitable and interesting it is.
in general, what classifications and types of portfolios exist, and what features they have.
Definition of Portfolio Investments
A simple and understandable definition of portfolio investment might sound like this:
Investing capital in various types of assets to reduce and hedge risks.
Purpose portfolio investment is saving and increasing investment capital with lower risks.
In this case, the investor receives the main profitability in 2 cases:
- from payment of dividends (rent, rent, etc.);
- from capital growth in the value of the asset (fixation of profitability upon sale).
Types of portfolio investments
There are different classifications for the types of portfolio investments. Let's look at 3 of them:
- According to the degree of risk and profitability.
- By type of investment activity.
- According to the method of obtaining profitability.
By risk and return
In this gradation there are 2 main types of investments:
Conservative. If we talk about securities (many people limit their portfolio only to securities of different companies), then in this case a conservative approach will come down to investing money in various reliable companies in one or more related developing (also reliable) industries.
Diversified. This type of portfolio investment involves wide diversification not only within one type of asset, but also within investment instruments. An investor can get more in one period, for example, from bonds, and in the next - from bank deposits or stocks or precious metals.
By type of investment activity
There are 3 main types of activities here:
Conservative approach. Such investment activity is typical, as a rule, for investors with large capital, or for those who do not want to risk their money and minimize the degree of risk when investing. A conservative portfolio usually consists of reliable and low-yielding assets that either only provide savings taking into account inflation, or provide a small but stable profitability to its owner.
Moderate approach. In this case, the investor tries to save balance in risk/return ratio. As a rule, his portfolio consists of both reliable and low-yielding assets, as well as high-yield and riskier ones. It is important to have high liquidity in the last (aggressive) component of the portfolio.
Aggressive approach. This investor approach allows you to obtain maximum profitability with maximum risks. There are no conservative assets in the portfolio at all, or they make up an insignificant part of it. Speaking about the stock market, the assets of an aggressive portfolio will be mainly securities young and fast growing on this moment companies.
By method of obtaining profitability
In this classification of portfolio investments, the following types of portfolios can be distinguished according to the method of obtaining profitability:
Growth portfolio. IN in this case the investor receives a return mainly due to an increase in the asset price. If these are dividends, then they have a fixed small percentage. The increase in profitability occurs due to the development of the company and, as a result, the price of its shares increases. Growth portfolios are also divided into conservative, moderate and aggressive kinds.
Income portfolio. Here the situation is different: by default, such a portfolio includes those assets that, regardless of the degree of growth in their value, give more high percent return on capital. If we talk about the same dividends, then the interest rate on them will be high. This may indicate that the company has stopped growing geographically and overall retained earnings gives to its shareholders.