What are portfolio investments, and what’s in it for you?

What are portfolio investments, and what’s in it for you?

updated February 17, 2020

When it comes to any form of financial investment, it’s always prudent to do suitable research, plan for the future and take a long-term view. 

Nowadays, investment opportunities come in many forms. There are investment plans for conservative investors who prefer steady returns and stability. Then there are options for the more experienced investor who is prepared to take more risks and, as a result, enjoy higher returns.

Some of the more popular types of investments include paying a fixed monthly sum into long term mutual funds or buying stocks and shares in listed property companies. For investors who are keener or more active in real estate investments, buying properties directly or investing in commercial property bonds or in REIT’s may be the preferred route.  

Most prudent investors have an array of investments, ranging from the more conservative, to riskier, more speculative types. This is to diversify risks and also to ensure that opportunities to obtain higher returns are not missed by being overly conservative.

For those just starting on their investment journey, however, a number of questions consistently come up. These include:

What is portfolio investment?

An investment portfolio comprises a series of financial assets owned by an investor which are acquired in order to earn a profit. At the same time, the intent is to make sure that capital or asset values are preserved. Such investments may include real estate, property bonds, stocks, currencies, as well as commodities such as oil or gold.

Depending upon their objectives and levels of risk, portfolios can be described according to their strategies for investment:

  1. A Growth portfolio aims to enhance the returns to an investor by investing in something with slightly higher risks attached. Portfolios focused on growth investments typically offer both higher potential rewards yet, obviously, higher potential risks. Growth investing may involve investments in faster-growing, younger companies that have more potential for growth as compared to larger, well-established companies;

  2. An Income portfolio is more focused on securing regular income from investments compared to relying on potential capital gains. An example is buying stocks based on a stock’s dividends rather than on the expectation of share price appreciation;

  3. A Value portfolio is for investors looking to take advantage of buying assets which appear to be undervalued. Investors search for companies with profit potential but which are currently priced below what fair analysis deems their current market value.

There are other types of portfolios such as so-called Balanced Portfolios or Global Growth Portfolios but these usually contain elements of the three types of portfolio mentioned above.

What is Foreign Portfolio Investment?

Foreign portfolio investment (FPI) is a portfolio which consists of stocks, shares and other financial assets held by investors in another country. The investor may not have direct ownership of a company’s assets, owning them through a bank or mutual fund.

FPI, along with foreign direct investment (FDI), is one of the common ways to invest in an overseas economy. Securities held can include stocks and shares, bonds or other debt instruments issued by overseas companies or foreign governments. They may be mutual funds or exchange-traded funds (ETFs) which invest in assets overseas.

An individual investor interested in opportunities outside their own country is most likely to invest through an FPI. 

What are the differences in Direct Investments and in Portfolio Investment?

Some of the key differences include the facts that direct investment:

  1. involves ownership and control of the assets, whereas portfolio investment involves purchases of securities or minority holdings of shares;
  2. is usually undertaken by companies or individuals, whilst portfolio investments are held by investment institutions such as pension or mutual funds and are usually undertaken by banks or their related entities;
  3. is often arranged between governments, whilst portfolio investment is between banks.

What is the future of foreign portfolio investment in London?

The future of foreign portfolio investment in London remains positive as, between 2015 and 2018, the UK attracted more foreign direct investment (FDI) than any other country in Europe. There were nearly four thousand projects, with total capital investment more than second and third-placed Germany and France combined.

Analysis in Deloitte’s ‘Power Up: UK inward investment’ report also reveals that the UK ranks second only to the US globally in terms of the number of inward investment projects. 

57% of Fortune 500 companies have their European headquarters in the UK and, whilst the full impact of Brexit on foreign investor sentiment has yet to be seen, expectations are that a pro-growth, open and stable business environment will be maintained.

What is the best way to build an investment portfolio for beginners?

There are several key things you need to do to start portfolio investment:

1. Research and understand the variety of investments available

Are you going to invest in stocks and shares, commercial property bonds, mutual funds, certificates of deposit, real estate investment trusts (via REITs), Treasuries or something else? Whatever your choice, it’s important to understand what you are actually investing into, and the risks and rewards; 

2. Determine your investment objectives

Are you looking for slightly above average, stable returns over the medium to longer-term or are you wanting to try and achieve returns which outperform the broader market in the short term? If the latter, are you prepared to accept the increased risks attached?

 3. Decide how much you wish to invest in each type of investment

Prudent portfolio management is all about making the right allocation of your capital to achieve balanced returns. How much you invest in each asset type really depends on the type of investor you are (conservative or risk-taker, your age, your goals and so on) and the time horizon you are looking at to meet your investment objectives.

Should you have bonds in a portfolio?

Generally, bonds offer stability and provide income to a portfolio. In fact, the asset class is sometimes referred to as “fixed income”. Returns from bonds may not quite match the returns available from picking the right stock and watching it rise but, conversely, when stock markets fall dramatically, the bond market is usually steady.

Fundamentally, a bond represents a loan made by the bond purchaser to the bond issuer. For example, sovereign bonds are issued by nations or governments, corporate bonds by corporations. Commercial property bonds involve lending a development company an amount equal to the face value of the bond itself, then receiving interest from the bond until the bond matures. At that time, the principal should be returned by the bond issuer.

It’s a good idea to look more closely at commercial property bonds

For those making their initial foray into financial investment and planning to build an investment portfolio, commercial property investment bonds can be one of the best ways to go. Investing in commercial real estate bonds can help aspiring investors get started in property investment, without the worry of the various hassles related to development.

Some of the attractions of commercial property bonds issued by an experienced developer are that:

  • investors can benefit from the profitability associated with investment in the property sector, without all the issues related to direct property ownership; 
  • annual returns currently available are some of the most attractive around;
  • commercial property bonds can be asset-backed, so there are underlying assets to generate the required returns; 
  • risk can be mitigated substantially due to collective experience and insights; 
  • the initial investment amount varies depending upon the bond and investors do not need to save up to get a deposit or find enough cash to buy a single property; and
  • investors can avoid paying maintenance fees, stamp duty, council tax, insurance payments, as well as getting involved in complicated tenancy issues. 

At Nao Group, we have issued many commercial property investments over the years and have a long track record of successful real estate investment development projects in London.

If you are serious about building an investment portfolio and looking for great asset-backed investments into commercial spaces in London or are interested in learning more about our property investment bonds, don’t hesitate to contact us today. Alternatively, you can read here to find out more about us.

Nao Group is a commercial property developer creating coworking spaces in London and across the globe: building communities, not just places to live and work! 

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