How to build an investment portfolio to avoid money losses and nerves

Evaluating the profitability of an investment portfolio allows you to see the results, not just expectations. Numbers determine efficiency, point out mistakes, and indicate where the set of assets is performing poorly. Without accurate calculations, it’s impossible to adapt or forecast a strategy.

What Does Evaluating the Profitability of an Investment Portfolio Show

Evaluating investment results reflects the actual capital growth over a selected period, taking into account profits, losses, and all invested funds. The method captures the real returns from instruments, including stocks, bonds, futures, ETFs, and other assets.

The indicator links three key factors:

• market value dynamics of assets;
• holding period;
• receipts from coupons, dividends, and other payments.

An asset pool yielding +14% annually with average risk and inflation below 5% operates efficiently. However, without analyzing the results for each quarter, evaluating the profitability of an investment portfolio loses its meaning — money doesn’t like blind management.

Formulas Are Important, But Not All-Encompassing

Precise calculation requires specific data. The basic formula looks simple: Profit (%) = [(End-of-period value – Beginning value + Income received) / Beginning value] × 100.

For a diversified portfolio, the correct result comes from weighted profit, considering the proportional weight of each asset. Without it, the numbers distort the picture.

The asset pool includes:

• 50% of stocks yielding 10% profit;
• 30% of bonds providing 6% income;
• 20% of futures resulting in -4%.

Only a weighted calculation reflects reality: 0.5×10 + 0.3×6 + 0.2×(–4) = 6.4%. And only such a calculation of the profitability of an investment portfolio will provide an objective benchmark.

How to Calculate Investment Returns

Linking the calculation to a specific time frame is crucial. The same portfolio can show +18% for a quarter and -3% for half a year if the market corrects. The period affects the perception of efficiency.

For assessing an annual term, internal rate of return (IRR) or modified IRR are often used, especially with irregular investments. These formulas are more complex but reflect the dynamics of fund movement. Without IRR, it’s impossible to correctly calculate the result when funds are irregularly invested and payments vary.

Yield and Profit: Understanding the Difference

Investment profit is an absolute value. Yield is relative. The first depends on the investment amount, the second on the effectiveness of placement. An asset pool with a 7% yield may bring in more money than one with 12% if the investment amount is significantly higher.
Real profit from investments is higher in the first case, despite the lower percentage. Here, the analysis of investment portfolio efficiency should consider the goal: maximizing profit or investment efficiency.

Key Steps in Calculation

Precise calculation starts with a clear action plan. Each step affects the outcome — even the slightest deviation distorts the true picture of investment benefits.

Calculating profit percentage involves the following algorithm:

1. Choose the calculation period. Start and end dates are fixed. The more accurate the data, the more correct the result.
2. Evaluate the initial asset value. All assets are recorded at the beginning date based on market price.
3. Gather income data. Include dividends, coupons, option premiums, and transaction incomes.
4. Calculate the end-of-period asset value. Market evaluation of all positions, including unrealized profit or loss.
5. Compute the yield. Apply a formula or automated calculation through services (e.g., Quik, TradingView, Excel with XIRR).
6. Compare with benchmarks and adjust the strategy. Moscow Exchange indices, S&P 500, Central Bank rate — the basis for efficiency analysis.

Only a comprehensive analysis of financial results will provide a precise understanding of how the set of assets is performing.

Evaluating the Profitability of an Investment Portfolio: Factors Affecting the Final Result

Evaluating the profitability of an investment portfolio depends not only on numbers. The key role is played by investment instruments, their combination, volatility, and holding time. Large-cap stocks provide stability but lag in growth compared to venture assets. Bonds mitigate fluctuations but limit investment benefits. Futures accelerate results but involve risks.

A portfolio consisting of 60% stocks, 30% bonds, and 10% derivatives demonstrates moderate profitability with limited drawdown. Meanwhile, the S&P 500 growth in 2023 was 24.2% — above average. However, high-tech company stocks yielded up to 70% profit, while oil futures resulted in a 12% loss.

Each structure requires adjustments. For high-risk levels and long horizons, it’s more beneficial to hold assets with variable yields. For short-term goals, it’s rational to choose instruments with fixed coupons or high liquidity.

Why Calculate the Profitability of an Investment Portfolio

You can’t manage what you don’t measure. Without understanding the current profitability of a securities portfolio, it’s impossible to make informed decisions: buy more assets, move to cash, hedge positions, or change strategy.

For example, during ruble instability, analyzing the profitability of portfolio investments in currency shows real results, not illusory growth against inflation. In 2022, the Moscow Exchange index decreased by 43%, but when recalculated in dollars, the decline was nearly 60%. This example proves that calculations are necessary in both absolute and relative terms.

Tools for Evaluating the Profitability of an Investment Portfolio

Manual calculation is suitable for simple structures. However, for complex portfolios with numerous positions and different holding periods, specialized platforms are required.

Popular solutions include:

1. Excel with XIRR function — convenient for accounting for periodic contributions and withdrawals.
2. Broker’s personal account (Tinkoff, VTB, BCS) — displays asset dynamics online.
3. Platforms like Black Terminal, Fin-Plan — provide analysis, comparison with indices, and automatic indicator calculation.

Each tool provides information with varying levels of detail. It’s important to cross-check results, eliminate errors, and not rely solely on graphs.

Errors Distorting Results

Mistakenly accounting for losses, double-counting dividends, ignoring fees and taxes are common causes of distortions. Also, evaluating returns without considering inflation is unacceptable: 12% annually with official inflation at 9% yields a real profit of only 3%. Only calculating the profitability of portfolio investments considering these factors reflects reality.

Conclusion

Evaluating the profitability of an investment portfolio allows you to see the efficiency of investments and adjust actions promptly. In a dynamic market with constant changes in securities, those who calculate accurately win, rather than just taking risks.

In the conditions of an unstable economy, it is impossible to ignore the important question: why is an investment portfolio needed? The answer is obvious — to not lose money and achieve financial goals. It helps manage assets, reduce risk, and achieve stable profitability. Without a set of assets, even the most profitable investments can result in losses. A well-structured asset allocation, tailored to personal goals, is the foundation of financial security. An investment package is not just a list of assets, but a clear capital growth plan.

Principle of Portfolio Investment

Investing involves allocating capital among different types of financial instruments (stocks, bonds, funds, real estate, or precious metals). The main goal is to balance risk and return, making investments resilient to market fluctuations.

Each asset in the structure serves its purpose. Some provide growth, others ensure a stable cash flow, and others preserve capital value. This is the answer to why an investment portfolio is needed: it allows for a smart risk distribution, achieving a balance between profitability and reliability, and not depending on the success of a single instrument. This approach maintains confidence in the future and provides the opportunity to systematically grow capital.

Main Types of Investment Portfolios

There are three basic types distinguished by the level of risk and expected return. The options depend on the investor’s objectives, timeframes, and attitude towards volatility.

A conservative portfolio is designed to preserve capital. It contains a larger proportion of bonds and almost no stocks. A balanced portfolio includes both classes of instruments in almost equal proportions. An aggressive portfolio is built on stocks and growth funds. It is suitable for those seeking high returns and are willing to endure temporary setbacks.

For beginners, it is recommended to start with a more conservative model, gradually increasing the share of volatile assets.

Key Advantages of an Investment Portfolio

A set of assets transforms random investments into systematic financial management. The main advantage is diversification. Allocating capital among different asset classes reduces the risk of losses. In addition, an active basket:

• provides a clear link between investments and goals;
• allows for controlling and forecasting profitability;
• adapts to market changes;
• simplifies capital management;
• protects finances from inflation and currency fluctuations.

All these advantages make a portfolio an essential tool for any investor, from novice to professional.

How to Build an Investment Portfolio: Step-by-Step Algorithm

Understanding begins with setting a goal. It can be short-term (saving for a vacation), medium-term (buying a car), or long-term (saving for retirement). Then, it is necessary to assess your risk profile: how much are you willing to lose in the short term for future income. After that:

• select an investment strategy that aligns with your goals and timeframes;
• choose instruments — stocks, bonds, funds, currency pairs;
• allocate assets across classes and industries;
• open an account with a reliable broker;
• create a schedule for replenishment and evaluation.

A properly constructed portfolio allows you to manage not only investments but also emotions. Understanding why an investment portfolio is needed helps maintain composure even in unstable markets: diversified risks and a well-thought-out strategy reduce anxiety and eliminate impulsive decisions.

Popular Investment Portfolio Strategies

Strategies are divided into active and passive. The passive approach involves minimal intervention after the initial formation. The active approach requires constant adjustments and monitoring of market trends. There are also hybrid strategies where the foundation remains stable, but part of the set varies depending on the market conditions. In addition, strategies such as:

• dividend — selecting companies that consistently pay dividends;
• index — investing in ETFs tracking indices;
• thematic — investments in trending industries, such as IT or green energy.

Each strategy should align with the investor’s goals and level of expertise. Understanding why an investment portfolio is needed helps structure it according to experience and objectives. It is always better to start with simplicity — the clearer the structure, the easier it is to manage and adapt to market changes.

Which Investment Portfolio to Choose for a Beginner?

Several factors need to be considered. Firstly, the level of market knowledge and available instruments. Secondly, financial goals and the timeframe for achieving them. Thirdly, the attitude towards losses — how comfortable you feel with asset value declines.

Such a set of assets provides basic profitability, protects against inflation, and allows you to start exploring the market with minimal risks.

Rules for Managing an Investment Portfolio

Without effective control, a portfolio quickly loses relevance. Management includes assessing effectiveness, adapting to the market, and regular rebalancing. The latter is particularly important: asset allocation may shift due to the growth or decline of certain instruments.

Understanding why an investment portfolio is needed makes these actions deliberate — the goal is not just to invest money but to maintain the structure and achieve stable long-term results. Therefore, some securities are sold, while others are purchased.

It is important to track profitability, control broker commissions, monitor economic news, and know when to hold onto an asset and when to exit. A good investor acts based on a plan, not emotions.

Why Is Rebalancing Important?

Even an ideal pool of assets requires adjustments. Market changes, the rise of some assets, and the fall of others can distort the structure. Rebalancing helps restore the portfolio to its original allocation, reducing risk and maintaining the desired level of profitability.

For example, if stocks have grown to occupy 70% instead of the planned 50%, some of them should be sold and invested in more stable instruments. It is recommended to rebalance every six months or when the allocations deviate by 5–10%.

Conclusion

If you are still undecided about why an investment portfolio is needed, consider this: what will happen to your money without a plan? Spontaneous investments rarely bring benefits. Only a clear strategy, smart allocation, and regular management turn investments into a tool for achieving goals. Even for a novice, thoughtful capital management is accessible — the key is to act step by step and wisely. An investor’s portfolio is not just finances but control over the future!