FXstreet

You hear a lot of obscure terms in the investing business, too many of them math-related for sure. But one key idea that far too many gloss over is “portfolio.”

It sounds pretty complicated, but it’s not that hard to grasp. A portfolio is just a collection of investments. They are typically chosen at the same time with the purpose of providing the investor a range of asset classes.

This is not the same thing as diversification, which is owning a lot of investments in each asset class. An index fund with 500 stocks inside of it could be said to be diversified, but it’s not a portfolio.

After all, the entire fund is made up of one investment type — stocks. Now, stocks are great. You need them in your retirement plan to give you enough of a return to overcome inflation.

The problem with stocks is that sometimes they go down. That’s not a bad thing, generally. You get to buy more of them while they are “on sale.” But the ideal is to invest in a portfolio to balance out the ups and downs of the stock portion.

Traditionally, that means owning bonds. But a well-designed portfolio holds real estate, too, and commodities and foreign stocks and bonds.

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