How important is your portfolio

What is a portfolio? Definition and meaning - simply explained

There seem to be portfolios almost everywhere: companies run them, artists need them, even day-care centers work with them. The portfolio is also important when it comes to investing. We explain what exactly this is all about.

If Leonardo da Vinci had wanted to have a portfolio with him, he would probably have failed because of the logistics. He might have kept his most famous work, the Mona Lisa, in a folder; But by the last supper at the latest it would have been tricky. After all, with its almost 9 by 5 meters, it is a little unwieldy - and to make matters worse, it is emblazoned directly on a church wall.

Other Portfolios are easier to equip - especially if they are only filled in a figurative sense. This is how companies "collect" their goods or services into one Product portfolio, Actors use the sedcard as a portfolio of their most important works.

The portfolio is also important for anyone who wants to invest money. Because in Investment portfolio You may find stocks, bonds or real estate, i.e. investments that ideally increase in value. What exactly the investment portfolio is all about, where else portfolios are used and where the term actually comes from - our overview will show you.

Meaning: Where does the term "portfolio" come from?

Like so many loan and foreign words, the "portfolio" - seldom also called "portfolio" - has its origins in Latin. It is made up of the words portare ("to carry") and folium ("sheet"). The literal translation of the "sheet carrier" probably fits best with the portfolios of artists who collect their most important works in a folder - for example to apply for a place at a university.

Over time, however, other areas have also adopted the term in order to describe a general combination of things. You will encounter portfolios today, especially in business, but also at universities, schools or even in kindergartens.

in the Finance the term first appeared in 1952 with the American economist Harry Markowitz. With his Portfolio theory he was able to prove that investors achieve greater returns and reduce their risk if they divide their assets into different types of investment - i.e. one "broad" portfolio have. Markowitz later received the Nobel Prize in Economics for his work.

What is an investment portfolio?

Like any portfolio, the investment portfolio is a collection. However, as an investor, you do not collect any physical objects in an actually existing portfolio, but rather put together your portfolio in the figurative sense from various assets, too Asset classes called. This can be, for example, securities such asshares be, Bonds, but also Property, plant and equipment how property or moneythat you can get back to quickly - for example on the Overnight money account.

In theory, your portfolio can consist of just one asset class. Ideally, however, it contains a mix of riskier and lower risk assets in order to generate good returns, called returns. So you should try to find the optimal balance between risk and return. Here comes the Asset allocation into play, i.e. the selection of assets and their percentage of the entire portfolio.

It is also called that you mix different types of investments in your portfolio Portfolio diversification. You are spreading your risk. Or to put it more simply: you don't bet everything on one card.

An ideal investment portfolio also takes into account how important it is for you to be able to access your money again as quickly as possible. How exactly your portfolio looks like in the end depends on your specific life situation.

Example of an investment portfolio:

If you invest over a long period of time, you can in principle take greater risks. This is because you then have more time to sit out crises. Because in the long term, short-term price and value fluctuations will even out.

You could then divide your portfolio so that, for example, you invest 70 percent of your money in high-risk, but also higher-yielding investments. These include stocks or investment funds. The remaining 30 percent could then flow into low-risk investments such as bonds, overnight deposits or fixed-term deposits.

If you want to take less risk, for example because you have to support a family on your own or you are more afraid of losses in a crisis, simply increase the low-risk investment part.

Tip: A good way to generate comparatively high returns with manageable risk is to invest in ETFs. These are special equity funds in which a computer algorithm replicates a stock index such as the Dax. Read more about building wealth with ETFs here.

What other portfolio types are there?

In economics, the portfolio doesn't just play a role in finance. You come across that in sales and marketing Product portfolio, a compilation of the products and services that a company offers. The Brand portfolio in turn, unites all brands that belong to the company. And the Customer portfolio provides information about which customers are served. Large industrial companies and banks also use this IT portfolio - A complete overview of all IT applications, IT projects and the skills of IT staff.

Those who apply sometimes also need a portfolio. This then means a compilation of work samples. This can be done digitally or physically - for example when applying for a place at an art college. In the creative professions, in particular, companies often require proof of previous projects.

But the portfolio is also used in educational institutions. In a "real" or digital folder, the learning progress of pupils, students or Kindergarten children be documented. In portfolios at schools and universities, for example, there are references, certificates of attendance and certificates, while painting and handicrafts are collected in the day care center.