Types of Assets in a Portfolio
The most simplified understanding of stock market portfolio basics for beginners involves knowledge of the different types of securities available to investors. Portfolios generally contain a proper mixture of stocks, bonds, precious metals, futures, options and real estate.
A basic addition to a standard portfolio is capital stock. Usually allocated to a portfolio via stock certificates, these securities represent a capital investment into a company. The stock certificate does not necessarily represent the actual assets or property of the business, but rather the overall value of a portion of the firm.
Bonds are contracts that require an entity to repay the principle with interest at a specific date. These can include certificates of deposit (CDs) or commercial paper. They act essentially as a loan issued by a borrower. The creditor is the holder of the loan, represented by a bond certificate. These bonds can be sold by the originator and purchased for a portfolio, representing a long-term investment that is generally secured as a profitable investor.
Precious metals are usually included in a portfolio by means of gold, silver or platinum certificates. Traditionally, these were issued by governments, however, modern certificates come from private companies holding the gold in its tangible form. The overall benefit of precious metals in a portfolio is the fact that they generally rise in value over time and can be considered secured investments during a volatile market.
Futures contracts as part of a portfolio can be a highly-valued option for investors. As a type of derivative, futures are essentially agreements that give an entity the right to buy or sell a security at a future date or at a specific price. Again, this results in an investment option with minimal risk.
Similar to futures, option contracts give either a buyer or seller the right to purchase or sell an asset before the expiration of the contract. Call options are for the buyer, while put options are for the seller. This is another portfolio component with minimal risk.
However, a final component that investors needing information on stock market portfolio basics for beginners needs to understand is the addition of real estate into the mix. Real estate represents tangible property such as land or buildings. While this can often result in some of the greatest opportunities for profits, it can also result in major losses when the real estate is found to be a poor choice.
Above left: Consolidation Bond. (Supplied by Struthious Bandersnatch at Wikimedia Commons; Public Domain; http://upload.wikimedia.org/wikipedia/commons/f/f7/South_Carolina_consoliation_bond.jpg)