Investment Portfolio Analysis For Beginners

What is a Portfolio?

A portfolio analysis consists of a collection of financial assets such as stocks, bonds, commodities, cash and cash equivalents, including closed funds and exchange-traded funds (ETFs). People usually believe that stocks, bonds, and money are the essence of a portfolio. While this is common, it doesn’t have to be the rule. A portfolio can contain a wide variety of assets including real estate, art and personal investments.

You can hold and manage your own portfolio, or you can allow a money manager, financial advisor, or other financial professional to manage your portfolio.

Understand a portfolio

One of the key concepts in portfolio management is the wisdom of diversification – which means not putting all your eggs in one basket. The objective of diversification is to reduce risk by spreading investment across a variety of financial instruments, industries and other categories. The aim is to maximize profits by investing in different areas that respond to the same events differently. It is up to you to choose the potential of a diversified portfolio. How you build your portfolio depends upon the are all factors that determine:

  • Your goals for the future
  • your appetite for risk
  • your personality

Regardless of the combination of assets in your portfolio, all portfolios must have a certain degree of diversification and reflect the investor’s risk tolerance, target return, timeframe and other associated constraints, including tax position, liquidity requirements, legal circumstances and circumstances of uniqueness.

What is portfolio management?

Portfolio management deals with nurturing the investments made by a client, company or institution whose common objective is to meet their respective short or long-term financial goals considering their risk appetite.

Portfolio management requires the ability to weigh the strengths and weaknesses, opportunities and risks of an entire investment series. Options include trade-offs between debt, equity, domestic and international, and growth and security.

How to manage Portfolio?

You can think of an investment portfolio as a pie broken into sections of varying wedge sizes, with each part representing a different asset class and / or type of investment. Investors are looking for a well diversified portfolio to achieve a risk return portfolio allocation that matches their risk tolerance level. Although stocks, bonds, and money are usually considered the main building blocks of a portfolio, you can develop a portfolio with a wide variety of assets – including real estate, gold reserves, various types of bonds, paintings, and other collectibles.

The estimated portfolio allocation is for investors with a low risk tolerance. In general, a conservative strategy aims to hedge a portfolio by investing in low-risk securities. In this example, you can see that up to 50% is for bonds, which can include high-quality corporate and government bonds, including municipalities. A 20% equity allocation can include blue-chip stocks or large stocks, and 30% short-term investments can include cash, certificates of deposit (CDs), and high-yield savings accounts.

Most investment professionals agree that while diversification does not guarantee losses, it is a key component in achieving long-term financial goals while minimizing risk.

Types of Portfolios

There are a plethora of portfolios and portfolio strategies, you can also select multiple portfolios, the contents of which may reflect different strategies or investment scenarios structured for different needs.

  • A Hybrid Portfolio
  • A Portfolio Investment
  • An Aggressive, Equities-Focused Portfolio
  • A Defensive, Equities-Focused Portfolio
  • An Income-Focused, Equities Portfolio
  • A Speculative, Equities-Focused Portfolio

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What is Portfolio analysis?

The financial term portfolio analysis is the fundamental study of a specific portfolio in terms of yield, return on investment, and associated risks. The research or analysis is carried out with two objectives, namely minimizing risk and maximizing profit. Portfolio analysis is used in marketing for the two reasons mentioned above.

Understanding portfolio analysis

If a company sells a number of different products or services, portfolio analysis should be done on a regular basis. This means analyzing each product individually for profitability, the company’s contribution to sales, and growth potential. This analysis makes it easier to identify products that are not profitable at all or that are playing poorly in the group.

Products are categorized according to predetermined criteria such as sales value, market share, gross profitability, contribution margin, and life cycle. The results can clearly indicate which products should be withdrawn from the market or receive only fewer resources. It can also mean that the company will have to increase its investment and efforts in some stellar products with even greater potential. The analysis is carried out to improve global portfolio performance, because the ultimate goal is to maximize returns for shareholders.

The importance of portfolio analysis

  • The analysis was carried out in a large multinational company with several product portfolios. Companies need to be aware of the financial condition of their portfolios and their welfare. The main purpose of portfolio analysis is to study performance and the best strategy for maintaining it.
  • No company has all products with a profit. There will be multiple products or product lines that may result in losses. This is a money-consuming wallet and companies need to know about it so it can be discontinued or revised. The idea is to make it cheaper and more profitable.
  • Portfolio analysis helps companies follow their vision, mission and goals. Sometimes it can happen that the portfolio is losing money and the company has been unwittingly financing its own weight for a long time. In this case, the analysis provides a clear picture of the scenario.

The advantages of portfolio analyze

  • Determine the financial stability of the company along with product presentation
  • It serves as an analysis of product trends to predict that a market future is possible
  • A guide for investors and shareholders on how to evaluate portfolios financially
  • Decision-making tools for companies to make decisions about products, whether the product should be continued, changed or discontinued.

What is a business portfolio?

A business portfolio usually includes the collection of companies and products that make up the company. The business portfolio properly illustrates the strengths of the company and helps the company take advantage of the most attractive business opportunities.

Business portfolio analysis helps companies decide whether to invest more or less in their company. In addition, the portfolio helps identify and develop growth strategies to introduce new products and attract new business. At the same time, portfolios help companies decide whether to keep a particular product or not.

Business portfolio planning

Creating or planning a business portfolio involves several attributes. This is a strategic and systematic process.

  • Identification of strategic business units (SBU): The first planning step is to identify the various strategic business units (SBUs) in the company’s portfolio. SBU refers to a company unit that can be planned independently from other companies and has its own mission and goals. Typically, an SBU can be a division, product line, or even a separate brand. This more or less depends on the type and organization of the company.
  • Market appeal: When planning a portfolio, companies should try to understand and determine what is available in the market. They need to understand which market they need. There are various factors that make an industry attractive. A business portfolio should only be planned after analyzing these factors. Typical factors affecting market attractiveness are:
    • Market size
    • Market growth
    • Market profitability
    • Price developments
    • Competition
    • Total return on investment risk
    • segmentation
    • Sales structure
    • Separation of products and services
  • Competitive strength: Competitive strength analysis provides firms with dimensions to evaluate the competitive position of each SBU. There are several factors that need to be assessed in order to be competitive. The most important factors are:
    • Asset expertise and strengths
    • Relative strength of brands
    • Customer compensation
    • Comparison of cost structures with competitors, eg. relative cost position
    • Distribution power
    • Records of innovation and new technology
    • Access to finance and other investment resources

Business portfolio management

The expansion of a business portfolio also depends on many people and teams in the same company. In large companies, these teams and individuals are often decentralized and have their own agendas. For proper management of a business portfolio, the knowledge, ambitions and decisions of successors are tailored to the company’s short-term financial needs. At the same time, these characteristics are considered against the long-term strategic objectives of the company.

Several software systems for business portfolio management have been developed. They mainly focus on tracking and reporting internal operational activities while not maintaining market and competition information. The planning process is often very complex and interrelated, which is why different levels of business portfolio management are used.

Benefits of business portfolio management

  • The governance process makes a significant contribution to reducing investment risk while maximizing return on investment.
  • Good planning improves communication and coherence between IS and business leaders.
  • Proper planning creates team spirit and encourages leaders to think about the team and take more responsibility for the project.
  • Appropriate planning enables planners to plan resources more efficiently.
  • The planning process helps to identify redundant projects and makes it easier to end projects.

Product portfolio analysis

At this level, the governance process helps create a hybrid model to support a solution where the process combines internal funding with a focus on external markets. Reality based maps prepared. These criteria include market attractiveness, product strength, strategic suitability and risk. The resulting graph provides a comprehensive cross-examination of financial projections and targets. A graphic portfolio is created that shows the development of the market over time and helps develop alternative strategies for product markets that can be assessed and optimized.

Product life cycle analysis for portfolio analysis

This is also known as product life cycle analysis, which determines the different phases in which the product is located and which will eventually pass through. It mimics the biological life cycle and begins with recognition, continues to grow, continues to mature and ends in decline.

  • Introduction: An introduction is the first time a product is launched or launched. The market share is small and the growth rate is also low because the product is still in its early stages. Profit is not the goal here, but advertising.
  • Growth: This is the main product stage where the growth rate is higher and the market share continues to grow rapidly. The company gets the maximum profit at this stage of the product, and investors invest heavily. The advertising level is maintained and the products bring great profit to the company.
  • Maturity: In this phase the market growth rate stops and the market share remains unchanged or increases slightly. Promotional activities have no impact on growth or share. This is where the competition comes in and the price war begins. Product margins were severely affected and this caused many retailers to leave the market.
  • Reduction: This is where there is a decline in market share and consumer changes or deviations from the product, which causes the producer to leave the product by introducing a new variant of the same product. Many products can be withdrawn from the market at this point in time due to little or no profit being made. To increase the level of profit, the company may need to cut costs or reduce its marketing budget.

What is Investment Analysis?

Investment analysis is a broad term for various methods of evaluating investment, industry, and economic trends. It can contain charts of past earnings to predict future returns, choose the type of investment that best suits the needs of the investor, or evaluate individual securities such as stocks and bonds to determine risk, potential returns, or price movements.

Investment analysis is the key to a solid portfolio management strategy.

Understand investment analysis

The purpose of investment analysis is to determine how likely an investment will be presented and how worth it is for a particular investor. Key factors in investment analysis include the appropriate entry price, the expected length of time to hold the investment, and the role the investment will play across the portfolio.

For example, when analyzing an investment in a mutual fund, investors consider the mutual fund’s performance over time against its benchmarks and main competitors. Comparison of partner funds includes studies on yield differences, expenditure ratios, governance stability, sector weights, investment styles and asset allocation.

When it comes to investing, one size doesn’t fit everyone. The investment opportunities vary with investment goals, individual investing (risk appetite), time horizons and returns.

Stock portfolio analysis

Whether you are a short-term or long-term investor, understanding how to maintain the effectiveness of your portfolio can mean the difference between a steady return or a decrease in the value of your investment. By regularly analyzing your stocks, you can find and sell any investment that could impact the performance of your portfolio. You cannot predict the performance of the stock market, but you can make the right decisions that will determine how it will affect your financial well-being.

When to evaluate

If the dollar value in your stock portfolio is consistently below average, it may be time to re-evaluate your investment. Compare the dollar value of each stock to determine potential causes for your portfolio to decline. Long-term investors need to analyze their investment portfolio at least annually regardless of the results. Short-term investors need to re-evaluate their stocks on a daily basis and keep abreast of market news and industry reports.

Stock portfolio analyzer Best for mutual funds and ETF investors: Morningstar Portfolio Manager Morningstar is one of the premier portfolio analysis tools for everyday investors who want to learn more about their investment portfolio. Morningstar Portfolio Manager is a free tool that provides details on stocks, ETFs and mutual funds.

X-ray instruments also provide an in-depth understanding of each mutual fund or ETF to provide details that other analytical tools might miss. For example, it shows hidden costs and indicates whether you may be over-investing in stocks due to the distribution of funds.


  • Easy to Understand: Morning star charts and statistics are easy to understand, even for people who don’t have much investment experience.
  • Focusing on the Right Details: Most investors need to understand the distribution of their wealth and the fees they pay. The Morningstar tool provides details on this, but doesn’t overwhelm too much information.

What are the risks of an investment portfolio?

Portfolio risk reflects the overall risk for an investment portfolio. This is the combined risk for each individual investment in the portfolio. The various components of the portfolio and their weights contribute to the extent to which the portfolio is exposed to different risks.

The main risk of the portfolio is market risk and other systemic risks. This risk must be managed to ensure that the portfolio achieves its objectives. You can only manage this risk if you can measure it first.

Types of Portfolio Risk:

There are many types of investment risk, both at the portfolio level and at the individual security level. The following are examples of risk portfolios that are specific to individual securities. This risk can easily be managed through diversification:

  • Liquidity risk
  • Default risk
  • Regulatory Risk and Political Risk
  • Duration of risk
  • Style risk

Greater portfolio risk can affect the entire portfolio. Managing this risk requires more creative diversification and different strategies. The following are the main portfolio level risks.

The biggest risk for a portfolio is market risk. This is also known as system risk. Most of the assets are correlated to some extent. The result is a stock market crash that will knock out most of the shares. In fact, most financial assets lose value during a bear market.

The other risk involved is inflation risk. This is the risk of a portfolio’s purchasing power failing to address inflation. The reason is that the portfolio contains risk assets and the risk needs to be managed. In the long run, owning risky assets can help you outperform inflation.

Reinvestment risk can affect the entire bond portion of the portfolio. If bonds are purchased when the rate of return is high, bondholders will get high returns even if interest rates fall. If the yield is low when the bond matures, investors cannot reinvest with high yields.

Concentration risk refers to the correlation of assets in a portfolio. Exposure to too many specific sectors, assets and regions can create systemic risk for that part of the portfolio. Hidden risks can arise when assets appear to be unrelated but are affected by the same economic forces. For example, Chinese stocks, commodities and currency in emerging markets will be affected by China’s economic slowdown.

Interest rate risk and currency risk affect every portfolio. All assets in a portfolio should be analyzed to determine whether they are exposed to interest rate and currency risk.


Understanding and managing portfolio risk is perhaps the most important role in portfolio management. Asset allocation decisions have the greatest impact on portfolio risk. The ability to measure portfolio risk allows investors to optimize potential returns. The more risks that can be measured and controlled, the more capital that can be allocated to the risky assets that produce the highest returns.

The portfolio management application easily tracks your investments from anywhere, anytime. Some apps will sync with your existing account, while others will require you to manually enter information about your inventory. Either way, such apps provide up-to-date information – so you know where you are – and tools to get you where you want to be in the future.