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the main asset classes for an investment portfolio: from equities to real estate

Home » blog » the main asset classes for an investment portfolio: from equities to real estate

There are several critical factors to consider for the assets in an investment portfolio: return, risk and liquidity. These factors have a direct impact on the effectiveness of an investment strategy. To put together a successful investment portfolio, investors not only need to know what asset classes exist, but also understand their dynamics on the global stage. in 2023, for example, the stock market was volatile and many were revising their strategies to reflect the new economic reality.

Equities: opportunities and risks

Equities are one of the most prevalent asset classes in an investment portfolio. in 2023, the US stock market continued to recover from the 2020 economic downturn and attracted new investors. equities offer opportunities for dividends and capital appreciation, but come with high risks due to price volatility. in 2021-2022, technology stocks (Tesla, Apple, Microsoft) showed growth of 25-30%, but in 2023, the same giants faced sharp corrections.

characteristics:

  1. returns: historically, equities have offered returns of 7-10% a year for long-term investments.
  2. equity risk is high, especially for smaller companies or stocks in fast-moving sectors. Meta stocks, for example, fell 60% in 2022, underlining their vulnerability
  3. liquidity: extremely high, as shares are traded on exchanges around the world

bonds: protection and stability

bonds are debt instruments that provide investors with a fixed income. in a rising interest rate environment in 2023, fixed-rate bonds have become less attractive, as rising interest rates reduce the price of bonds in the secondary market. in the long term, however, bonds remain a stable asset in an investment portfolio.

characteristics:

  1. yield: in 2023, 10-year US government bonds will yield between 3.5% and 4%, while lower-rated corporate bonds could exceed 8%.
  2. risk: depends on the issuer’s rating. Bonds of Apple or Microsoft, for example, are considered almost risk-free, while emerging market bonds can be riskier.
  3. liquidity: medium. although debt can be sold on the secondary market, liquidity depends on the rating and market conditions.

bonds are ideal for long-term investors looking for stable income with moderate risk.

funds: convenience and accessibility

mutual funds are a professionally managed pool of assets. in recent years, interest in index funds and ETFs has been particularly strong. 2023 S&P 500 ETFs have provided investors with returns of between 15% and 20%, which is particularly attractive given inflation and market volatility.

characteristics:

  1. performance: depends on the type of fund. for example, Vanguard’s 2023 S&P 500 ETF achieved returns of 17%, while more aggressive growth funds achieved returns of up to 30%.
  2. risk: medium. the funds spread risk by including a large number of assets in the portfolio.
  3. liquidity: high. the funds are traded on an exchange and can be bought and sold at any time. for example, the Vanguard Total Stock Market ETF can be bought intraday on the NYSE or NASDAQ.

an ideal option for those who do not want to manage their assets themselves but want access to a wide range of securities and diversification.

real estate: sustainability and long-term returns

real estate remains an important asset in an investment portfolio, especially against the backdrop of rising inflation and economic volatility. in 2023, the US real estate market saw prices continue to rise despite rising interest rates. the value of owner-occupied homes increased by 7-10%, while commercial property yields rose to 5-6% per annum.

real estate:

  1. returns: in 2023, residential property in major US cities, such as New York or Los Angeles, yielded 4-6%. commercial property in the centre of big cities could yield up to 7-9% a year.
  2. risks: low. Real estate is less sensitive to short-term market fluctuations, but can be affected by long-term economic downturns or changes in tax policy.
  3. liquidity: low. selling property takes time and can take months or even years. stable prices per square metre and possible increases in value keep this asset class attractive.

gold: a sustainable investment

in an environment of economic uncertainty and high inflation, the precious metal has seen its value rise by 12-15%, making it attractive to investors looking to avoid the risks of other assets.

characteristics:

  1. yield: gold does not offer regular income, but it can increase in value in times of crisis. in 2023, the gold price was around $2,000 per ounce, up 12% from 2022
  2. risk: low. the precious metal is a stable asset in the long term, but the price can fluctuate sharply in the short term, as in 2022, when the price fell 5% due to a sharp increase in dollar tightness
  3. liquidity: high. The metal can be sold quickly on global markets through platforms such as the London Metal Exchange or COMEX.

investing in gold remains a good way to diversify a portfolio, especially in times of financial crisis.

portfolio assets: conclusion

The right spread of assets in an investment portfolio ensures stability and high returns in different economic conditions. stocks, bonds, real estate, gold, equities: each category has its own characteristics and risks. To build a successful portfolio, it is important to take a holistic approach, including the right spread and selection of assets based on investment objectives and time horizon.

 

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How to Evaluate the Effectiveness of an Investment Portfolio: Best Evaluation Methods

Creating a portfolio is only half the battle. The real work begins afterwards. Evaluating the portfolio’s effectiveness is the key to control, analysis, and improvement of results, especially when the goals go beyond simple “buy and wait for growth.”

Why Portfolio Evaluation is Necessary

Without measurements, it is impossible to manage — this statement is relevant in investments as well. Financial assets can behave unstably over time: some grow, others decline, and some show zero dynamics. To preserve and increase capital, it is necessary to track not only profitability but also the level of risk, volatility, alignment with goals, and behavior relative to benchmarks.

Simple profit in percentages will not say anything if the losses incurred are not taken into account. Therefore, a professional approach requires the use of precise indicators and mathematical models.

Main Goals and Analysis Parameters

Before starting calculations, it is important to determine what exactly needs to be measured. Evaluation is carried out based on several criteria:

  • return level in relation to risk;
  • income stability and volatility;
  • deviation from the benchmark;
  • balance of asset classes;
  • compliance with personal risk profiling.

All aspects should be analyzed together. Otherwise, a portfolio may be mistakenly considered successful when it has long deviated from the strategy and goals.

Classic Methods of Evaluating Investment Portfolio Quality

The financial industry has accumulated an arsenal of methods that allow for evaluating portfolio effectiveness:

  • Sharpe Ratio — shows how much profit is generated per unit of risk measured by standard deviation;
  • Sortino Ratio — a refined version of Sharpe, considering only negative fluctuations;
  • Treynor Ratio — relies on market risk measured through the beta coefficient;
  • Jensen’s Alpha — demonstrates the excess return over the expected at a given level of market risk;
  • Benchmark — comparison with a benchmark index, such as S&P 500 or an industry indicator.

Formulas allow breaking down the results, removing emotions, and focusing on numbers.

How to Use Sharpe and Its Analogues

The most popular indicator — the Sharpe Ratio — is used to assess the relationship between profit and risk. The higher the value, the more efficiently the portfolio works at the given volatility. However, Sharpe has a weakness: it considers all deviations, including those related to growth.

Here, the Sortino Ratio comes in handy, excluding positive fluctuations and focusing only on potential downturns. This perspective is considered more logical because investors are concerned about the risk of decline, not growth.

For those analyzing results with a connection to market dynamics, Treynor and Jensen ratios are suitable.

Benchmarks: References for Comparison

Understanding how much a case deviates from a basic reference point helps track efficiency not in a vacuum but in the context of the current situation. Typical benchmarks include stock indices such as S&P 500, MSCI World, or industry indicators.

The choice of benchmark depends on the composition of assets. If the case consists mainly of American stocks, comparing with the S&P 500 would be logical. And if it involves global securities, it’s better to take an index reflecting international markets.

Risk Profiling and Its Role in Strategy Selection

Before evaluating portfolio effectiveness and calculating how well it met expectations, it is necessary to align its behavior with personal goals and an acceptable risk level. This is where risk profiling comes into play — determining the investment temperament: conservative, balanced, or aggressive.

The evaluation is based on surveys, preference analysis, and acceptable capital drawdown. A case compiled without considering these factors may be potentially profitable but psychologically unbearable for the owner.

How Diversification Works in Practice

Allocating assets across classes, regions, and industries reduces portfolio sensitivity to unexpected changes. Diversification specifically helps offset declines in some securities with growth in others.

A well-structured set of investments not only looks better but also weathers crises better. For example, a decrease in stocks can be balanced by the growth of bonds or defensive instruments. The effectiveness of distribution can be checked through the return-to-volatility ratio over a long period.

CAPM Model and Markowitz Theory: Fundamental Approaches

Among the classical portfolio study methods, the Capital Asset Pricing Model (CAPM) stands out. It establishes the relationship between expected return and market risk, helping understand if the result aligns with the commitments taken.

Complementing this is the Markowitz Theory, which underpins modern portfolio theory. It states that for a given return, there is a set of assets with minimal risk. Conversely, to achieve higher returns, an investor must accept higher volatility. The task is to find the perfect balance.

Black-Litterman Theory: Modern View on Evaluation

Many consider the Black-Litterman theory a modern reinterpretation of Markowitz. It integrates investor’s subjective forecasts with market objective data, making the model more flexible and applicable to real conditions where participants’ views may vary significantly.

This approach is useful for cases with alternative assets where standard methods may not work.

Which Tools to Choose in 2025?

Evaluating portfolio effectiveness in 2025 requires a comprehensive approach. Simply looking at the final profit percentage is not enough. It is important to consider diversification, benchmark behavior, risk indicators, and stability.

The most accurate picture is provided by combinations: ratios + comparative analysis + behavioral parameters. This system allows for establishing a monitoring style resistant to emotions and sharp movements. After all, the main goal is not just to earn income but to retain it in the long term!

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

Investing is the first step towards a stable financial future. Building an investment portfolio is the foundation. It requires in-depth knowledge of financial markets, analytical skills and experience. Let’s take a closer look at it in this article.

Why an investment portfolio is not an ordinary collection of assets

To really understand what an investment portfolio is, it is important to realise that it is not just a handful of stocks and bonds, but a carefully calibrated system. It is like a garden in which every flower and tree plays a role. Stocks are like bright, fast-growing flowers that can yield a bountiful harvest but need constant attention and care. Bonds, on the other hand, are like sturdy trees that provide a solid foundation, stable income and protect you from financial storms.

Consideration of objectives and level of risk

The approach requires consideration of many factors: risk level, time to reach financial goals and desired returns. The key is to ensure that the foundation not only generates returns but is also fit for purpose, whether that is buying a flat, raising children or retiring early.

How to build an investment portfolio and avoid beginner’s mistakes

First you lay the groundwork: what do you want to achieve and over what period of time? Then you start choosing assets. Novice investors should avoid overly complex and risky instruments.

Common mistakes and how to avoid them

Step by step: define your objectives, select the right assets (stocks, bonds, funds, gold, real estate, cryptocurrencies) and analyse the risks. It is important to remember that each plays a different role:

  1. Equities. They offer great upside potential, but can be very volatile.
  2. Bonds. A stable, less risky source of income that offers protection in times of market turbulence.
  3. Funds. Offer diversification as they cover many assets, reducing overall risk.
  4. Gold. Traditionally considered a “safe haven” during periods of economic instability, retains value and reduces risk.
  5. Real estate. Provides stable rental income and increases long-term capital growth.
  6. Cryptocurrencies. A risky but potentially profitable asset suitable for a small part of a portfolio to increase returns.

A common mistake is to bet on just one type. Analysis of historical data confirms that diversified portfolios show greater return stability than portfolios consisting of one or a few assets. This is because different asset classes have different correlations, which lowers the overall risk level of the portfolio. It is therefore important to create a balanced and sustainable investment portfolio by combining different asset classes to minimise risk.

Portfolio diversification: how to reduce risk and maximise returns

The secret to a healthy investment portfolio is diversification. Imagine a box of sweets, where each candy is a separate asset. If one is not so tasty, the rest will manage. With diversification, you can reduce risk by spreading it across different assets: stocks, bonds, real estate, gold and funds.

Examples and benefits of diversification

This is especially important for novice investors who are not yet prepared for high volatility. If stocks fall, bonds or real estate can help offset the losses. Diversification is a strategic safety cushion that helps maintain a stable base even in the most unpredictable economic conditions.

What assets should be included in an investment portfolio for a successful start from scratch?

For the novice investor, selecting assets can be akin to putting together a construction kit. You should include a variety of “buckets”: stocks for growth, bonds for stability, funds for simplicity and maybe a little real estate. By including different types, you can minimise risk and build a flexible investment portfolio that suits your financial goals and capabilities.

Real examples of return and risk

Statistics prove it:

  1. Equities can generate significant returns, but they are often subject to extreme fluctuations. For example, the S&P 500 index has a long-term average of around 10%, but some years can show both increases of 20% and decreases of 30%.
  2. Bonds, on the other hand, offer stable but moderate returns. For example, the return on Russian government bonds is about 7-8% per year, which reduces the overall volatility of the portfolio.
  3. Funds such as ETFs offer an easy way to invest, even with minimal investment, and have already proven their value. According to the Moscow Stock Exchange, Russian equity ETFs have grown 15% over the past 2 years, making them an attractive tool for beginners.
  4. And real estate, especially commercial property, is steadily rising in price and providing rental income. Investment in commercial real estate in Moscow, for example, can yield around 10% a year.
  5. Cryptocurrencies remain risky but potentially profitable assets. Bitcoin, for instance, rose 70% in 2021 and caught the attention of many investors. However, its high volatility requires a cautious approach and portfolio allocation based on risk.

It is best to start with conservative assets and gradually add riskier instruments to build a stable financial base.

How do you choose a broker to build your investment portfolio?

Choosing a broker to build an investment portfolio is an important step that is often underestimated. The main criteria are licensing, commission, ease of use of the platform and availability of research. Imagine the broker is a guide in the investment world. If the guide does not know the way or offers exorbitant prices for services, the journey is unlikely to be pleasant.

Platforms and their features

A licence ensures the safety of your funds and low commissions help you keep your profits. A convenient platform makes investing easy and accessible, even for beginners. Examples of such platforms include Tinkoff Investments, SberInvestor and VTB My Investments. Some brokers offer detailed analysis and training, especially useful for beginners.

Balancing your investment portfolio: what you need to know and do regularly

Balancing your investment portfolio is like maintaining your car: regular maintenance ensures it doesn’t let you down at a key moment. Core assets change in value over time and the original structure may be altered.

How to balance in practice

If stocks rise faster than bonds, the investment portfolio becomes riskier than expected. To avoid this, regularly review the asset allocation and bring it back to the target level. For example, if equities have risen and now hold a larger share, sell some of it and invest the money in more stable assets, such as bonds. This helps maintain an optimal level of risk and keep your investment strategy in line with your financial goals.

It’s time to take action: start your journey to financial freedom

Regardless of your age and financial situation, you can always find the right strategy and start investing now. A retiree investment portfolio can include conservative instruments that allow you to preserve your savings and receive a stable income. The important thing is to take the first step and then follow the plan with confidence. Financial freedom starts with a small but steady effort.

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