The creation and composition of an investment portfolio is not an easy task, the investor must ensure that they have both financial stability and profitability. Appropriate asset classes ensure that an effective and profitable portfolio is being put together, with later revisions being an option if changes need to be made. A successful portfolio will include assets from both the domestic and international market in order to improve the portfolios exposure to risk in each market.
On top of the common investment vehicle, there are alternatives which an investor can turn to when their portfolio is not performing as they expected. In addition derivative securities are also helpful to enhance a portfolios performance. This highlights the need for an investor to understand the options before they begin to compose their portfolio.
International Portfolio Diversification
A diverse portfolio is essential for an investor to expose their portfolio to the necessary risk due to the differences in characteristics from one asset to the next; these assets will be within both the domestic and international market. Fisher (2012) states that a “global portfolio should earn a higher return for the same level of risk and take less risk for the same level of return.” Therefore an investor can achieve a reduction in risk through international diversification. Some financial experts give advice to investors to include international assets into their portfolios. Over recent years, experts have begun to look ahead into the market and it has been noted that there is “A continuation of the long-term trend in the decline of the dollar” (Fisher, 2012). This information indicates that the incorporation of international assets withi...
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...otal liabilities of the portfolio. There are various ways to enter into the international investment market, one of these options are derivative securities. An example would be future contracts which are going to further enhance the portfolio. There are other alternative options which can be used to enhance the portfolio; it is essential that the investors know all of their options and utilize them before they assemble the final portfolio composition.
As we can see research is essential for investors before they can fully utilize their potions for their portfolio and successfully create an effective and profitable portfolio. They must call upon all of their experience, knowledge, determination and dedication in order to fully commit to an investment strategy and follow their portfolio through; their aim is to have an excellent portfolio which exceeds optimum levels.
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