Diversification of Investment Portfolio: Complete Guide

When it comes to investments, a person often thinks about stocks. But there is another important tool — bonds, which offer unique advantages. Why these securities deserve attention and what role they play in a well-thought-out investment portfolio? This article will tell you. You will learn why investors need bonds, how they work, and how to invest in them correctly.

What are bonds and why do investors need them

Bonds are debt securities on which the issuer undertakes to pay a fixed coupon and return the principal on the maturity date. Unlike stocks, they do not represent ownership in the company but guarantee a cash flow, often independent of market turbulence.

In practice, both corporations and governments use such instruments. For example, the issuance of OFZ bonds in the amount of 1 trillion rubles in 2023 allowed the Ministry of Finance to stabilize budgetary commitments. The corporate sector is also active: “Gazprom” and “Russian Railways” regularly place bonds ranging from 10 to 100 billion rubles.

These instruments are necessary for building a strategy in which the yield is known in advance, and the level of risk is controllable.

The advantages of bonds

Debt assets offer clear mathematics: coupon + principal = income. This approach removes speculative stress and makes the instrument ideal for long-term planning. Bond yields can reach 11–13% per annum with moderate risks — for example, in the high-yield bond segment.

The benefits of investing in bonds are particularly evident when compared to bank deposits. If a deposit is limited to a 13% rate and full dependence on the key rate, then an investment instrument can “surpass” this threshold through revaluation on the secondary market or bonuses from the issuer.

Also important: income from debt securities is not always subject to tax. For example, government securities with a fixed coupon are exempt from personal income tax if ownership conditions are met.

How to start investing in debt assets without mistakes

Investing in bonds for beginners requires precise selection. First of all, it is important to track three parameters: issuer rating, time to maturity, and coupon rate. The Russian market offers a wide range: from reliable OFZs to speculative high-yield bonds.

For a start, the following algorithm is suitable:

1. Evaluate goals — capital preservation, passive income, or diversification.
2. Study ratings from A and above.
3. Select instruments with a short term — up to 3 years to minimize volatility.
4. Check parameters: coupon, maturity date, early redemption conditions.

Why do investors need debt instruments at the beginning of their journey? To build a foundation and understand how the market works without sharp movements. It’s like learning to drive on automatic — simple, stable, without overload.

Building an investment portfolio

Fixed-income securities play a key role in asset allocation. In a typical balanced portfolio (for example, 60/40), bonds provide protection in a falling stock market. The reduction of the Central Bank’s rates increases their value, resulting in capital growth.

Building an investment portfolio without them is like constructing without a foundation. Even aggressive investors use them as stabilizers.

At the peak of the 2022 crisis, many private portfolios in Russia stayed afloat precisely because of government bonds. The decline in stocks was offset by the rising price of OFZ bonds maturing in 2024–2025.

Bonds are needed to balance risk and return. They should not only “offset” a decline but also provide a stable cash flow.

Yield, coupon, and terms

The yield of bonds depends on the type of security and the issuer. Government bonds are reliable but with a minimal rate: on average 7–9% per annum. Corporate bonds offer higher yields but require analysis. For example, bonds of “Sovcomflot” and “PhosAgro” yielded up to 12% with a BBB rating.

The coupon rate is a key parameter. It reflects the regular income paid every six months or quarterly. Debt instruments with amortization gradually repay the principal, reducing risks.

The maturity date also plays a role. Short-term bonds are less susceptible to fluctuations, while long-term bonds are more sensitive to rate changes. In 2024, valuable assets with maturity dates in 2026–2027 are of interest amid possible key rate cuts.

Risks, volatility, and how to deal with them

The financial market is not a chessboard with predictable moves but rather a dynamic stage where investing in securities requires an understanding not only of income but also of associated risks. They may appear more stable but are not free from fluctuations.

The main risks are:

1. Credit — the issuer may default. For example, in 2020, several bond issuers experienced technical defaults due to cash shortfalls.
2. Interest rate — when the key rate rises, the market revalues already issued securities, reducing their market value.
3. Liquidity — not all assets can be quickly sold at a fair price, especially among small issuers.

However, bond volatility is significantly lower than that of stocks. Government bond assets rarely lose more than 5–7% per year, even in unstable conditions. This makes them a cornerstone of strategies with low and moderate risk levels.

Why do investors need debt instruments in this context? For hedging, risk control, and maintaining a stable cash flow, especially during periods of high turbulence in stock markets.

Why investors should invest in bonds

A comparison with banking instruments reveals one of the key reasons. With deposit rates around 11%, quality debt instruments can yield up to 13–14% without the need to lock funds for a year or more.

Stocks offer growth potential but also the risk of a 20–30% downturn in a crisis. Unlike stocks, bonds repay the principal and pay the coupon, maintaining a cash flow regardless of market fluctuations.

Of course, the approach depends on goals. For passive income, stability, and predictability, they appear more reliable. Especially when selecting securities based on term, coupon type, and issuer.

Why do investors need bonds when they have other assets? To create a multi-layered investment system where each category performs its task — from capital protection to profit growth.

Examples of strategies

Professional portfolios include various types of debt instruments. For example, a model with 60% OFZs and 40% corporate bonds showed a yield of 10.4% per annum in 2023 with a maximum drawdown of 2.1%. For comparison: a portfolio with 100% stocks during the same period yielded 14% but with declines of up to -17% at certain stages.

An example of a balanced strategy:

• 40% — OFZs maturing by 2026;
• 30% — investment-grade corporate debt instruments (e.g., “Norilsk Nickel,” “Sibur”);
• 20% — high-coupon high-yield bonds (15–17%) from reliable issuers;
• 10% — cash in rubles or short-term securities for flexibility.

Such a portfolio yields 10–12% with minimal drawdown. Diversification by sectors and terms allows for risk mitigation and volatility control.

Why do investors need these securities as part of a strategy? To distribute the load, reduce drawdowns, and increase result predictability — especially during periods of economic instability.

Why investors need bonds: the main thing

Why do investors need bonds? To create a stable foundation for long-term growth. They are not a replacement for stocks, not an alternative to deposits, but the third axis of the investment triangle: stability, income, and control.

Debt assets are not a temporary refuge. They are a working tool used by anyone who thinks in terms of years, not minutes.

Investing is a structured process of capital management. The essence of an investment portfolio lies in risk distribution and creating a balanced strategy to achieve financial goals. Why can’t you just choose one asset and wait for its growth? Because the market is unpredictable, and any investment involves potential losses and volatility. A portfolio helps smooth out fluctuations, minimize risks, and increase the chances of stable returns. Each investor pursues different goals: one wants to earn quickly, another is looking for tools for long-term capital accumulation, and a third creates passive income.

Why an Investment Portfolio is Needed: Main Objectives and Essence of the Tool

Investments are always associated with uncertainty. If you invest all your funds in one stock or cryptocurrency, you can either make a high profit or lose everything. A portfolio allows you to balance risks by allocating capital among different asset classes. When some instruments fall, others may rise, thus supporting the investor’s stability. For example, in a crisis, stocks may decline, but bonds or gold often show an opposite trend.

It is important not just to earn, but to create a system that will generate income for decades. To achieve this, experts develop portfolio investment strategies that consider profitability, liquidity, and risk level.

How to Create an Investment Portfolio: Key Principles

Before creating an investment portfolio, it is necessary to clearly understand why it is needed and what its essence is. The main goals are:

1. Generating passive income – investing in dividend stocks, bonds, real estate.
2. Capital accumulation – long-term investments in growing assets.
3. Inflation protection – buying precious metals, commodities.
4. Speculation and short-term deals – active trading and investments in high-volatility assets.

Diversification as the Basis of Stability

One of the most important principles of investing is diversification. It is necessary to distribute assets in a way that minimizes risk and maintains stable capital growth. Diversification can be between different markets, industries, currencies, and countries. For example, a portfolio may include stocks of technology companies, bonds, ETFs, commodity assets, and cryptocurrencies. Using different instruments reduces the dependence of the portfolio on one sector, creating resilience to market fluctuations.

Investment Portfolio: Essence, Types, and Features

Each investor has different goals, planning horizons, and acceptable risk levels. For one, maximum capital preservation is important, while someone else is willing to go further for high returns. There are different types of investment portfolios, each of which takes into account risk level, asset allocation strategy, and goals.

Conservative Portfolio: Stability and Capital Protection

Oriented towards minimal risks and designed to preserve capital even during periods of economic instability. It includes low-volatility instruments capable of providing moderate but stable income.

Composition:

1. Government bonds – securities with fixed income.
2. Deposits and insurance savings – guaranteed capital protection with minimal returns.
3. Gold and precious metals – protective assets that retain value during crises.
4. Dividend stocks – securities of companies that consistently pay dividends (e.g., Johnson & Johnson, Coca-Cola).

The average return of a conservative portfolio is 3-7% per year, with minimal risk of losses. This is an optimal option for those seeking to protect capital from inflation and preferring predictability and stability.

Moderate Portfolio: Balancing Risk and Return

Suitable for investors willing to accept a moderate level of potential losses for higher profits. This format combines stocks, bonds, and alternative investments, creating a balanced strategy.

Composition:

1. Blue-chip stocks – shares of the largest global companies with stable growth (Apple, Microsoft, Tesla).
2. Corporate bonds – securities of private companies with higher yields than government bonds.
3. Real estate funds (REITs) – an instrument that allows earning from rent and real estate value growth.
4. Exchange-traded funds (ETFs) – diversified assets consisting of hundreds of different stocks.

The average return is 10-15% per year, while the risk level remains manageable. This is an option for long-term investment and capital preservation with moderate growth.

Aggressive Portfolio: Maximum Return and High Risks

Oriented towards high profits but requires readiness for significant market fluctuations. It includes high-risk assets capable of generating returns tens of times higher than the market average.

Composition:

1. Stocks of fast-growing companies – startups and IT companies with high growth potential (Nvidia, AMD).
2. Cryptocurrencies – digital assets with high volatility (Bitcoin, Ethereum, Solana).
3. IPOs and venture investments – participation in early stages of promising projects.
4. Futures and options – derivative financial instruments for speculation.

The potential return here can reach 30-50% per year and higher, but the risk level is significantly higher than in conservative strategies. Such a portfolio requires constant monitoring, analysis of market trends, and flexible asset management.

Which Assets to Include in an Investment Portfolio

Investing is impossible without choosing quality instruments that ensure capital growth and protection against potential losses.

The essence and types of assets for an investment portfolio:

1. Stocks. Fundamental instrument for capital growth. Long-term investment in leading companies’ stocks allows for stable returns.
2. Bonds. Fixed income and low risk. Help stabilize the portfolio, reducing volatility.
3. Cryptocurrencies. High growth potential but significant volatility. Optimal for aggressive strategies and portfolio diversification.
4. Real Estate Investment Trusts (REITs). Allow earning from real estate without the need to purchase it, providing passive income.
5. Gold and commodities. Used to protect capital from inflation and economic crises.

Conclusion

The essence of an investment portfolio lies in a structured approach to capital management, where diversification, risk analysis, and clear definition of financial goals ensure stability and long-term asset growth. Creating a balanced set of financial instruments requires detailed planning and choosing the right asset allocation. An optimal portfolio considers risk level, investment horizons, and capital management strategy.