A Guide For Planning Your Investment Portfolio: Crypto, Securities, and Utility Assets

We hate useless introductions just like you so we are going straight to the point by exploring what is an investment portfolio after which we will be

We hate useless introductions just like you so we are going straight to the point by exploring what is an investment portfolio after which we will be exploring various investment options like crypto, securities, and utility assets.

What is an Investment Portfolio?

In simple terms, an investment portfolio is a collection of various securities/commodities or investment options that an investor has chosen to invest in for the purpose of gaining returns.

For an investor, investing might come naturally and effortlessly but if you are a beginner, it might seem difficult and complex to understand what to invest your money in, given that there are a wide range of investment options available in the market.

And before making any investment decision or creating an investment portfolio, it’s important to determine your financial goals and the returns you expect from the market. This is something every experienced investor would recommend and so do we!

How to go About Planning an Investment Portfolio

  1. Understand your financial goals

A lot of attributes like age, income, expenses, risk assessment, etc. will factor into determining your financial goals which may be short-term and/or long-term.

Short-term investments: These investments are ideal if you’re looking for returns in a short span of time. These investments yield lesser returns as money invested is usually lower which also makes them less risky. Government bonds, certificate of deposit, savings account are all examples of short-term investments.

Long-term investments: Ideal for higher returns over a longer period of time.  Long-term investments include investing in equity, creating a fixed deposit, or investing in gold bonds.

Pro Tip: For maximizing returns on your investment, always invest in short-term as well as long-term investments.

  1. Diversify your portfolio

Although Warren Buffet maintains that diversification is protection against ignorance, it’s important to understand that a lot of unpredictable circumstances influence the markets. If you want to learn more about Buffett’s investing technique, you should read the Margin of Safety book by Seth Klarman.

If any particular industry or sector is hit hard due to the volatility of the market, you’ll be able to cut your losses if you’ve diversified and invested in different types of financial instruments of different asset classes.

Diversification, in addition to playing an important part in managing risk, may also help in yielding higher returns as a result of markets reacting differently in different circumstances

2. Track your investments

Periodically assessing your investments and analyzing their returns is an important aspect of investing. It equips you in understanding the circumstances that influence your investments and help you in predicting their future performance.

Now that we’ve understood the golden rules of planning an investment portfolio, let’s explore different asset classes like crypto, utility assets, and more for investment.

Understanding and Investing in Different Asset Classes

  • Cryptocurrency

Cryptocurrency is a decentralized and unregulated currency that works through blockchain technology. Over the last couple of years cryptocurrencies have become a popular investment option, their hype somewhat increased by the erratic changes in their prices due to the constantly changing public opinion.

Is cryptocurrency a good investment option?

Crypto is a typically high-risk – high-reward investment option. According to a study by Yale economist Aleh Tsyvinski, in order to achieve optimal construction of every portfolio, Bitcoin (BTC) should occupy about 6% of it.

This statistic agrees with other expert opinions, that propound the addition of cryptocurrency for the purposes of diversification of portfolio.

An effective method of handling your crypto portfolio is to use Crypto portfolio rebalancing tools. These tools help investors to rebalance the portfolio by maintaining steady risk levels, aligning your portfolio with your goals & expectations, and repeatedly involving the previous portfolio asset ratio to sustain the aspired asset allocation framework.

Advantages of Investing in Crypto

No Government interference: Since crypto is not regulated by any government, it is immune to changes in the market that occur due to government regulations. Its value does not rely on any one country’s economy, making it a more viable option in times of inflation and recession.

Increased acceptance: Despite Elon Musk’s elusive claim of accepting bitcoin as payment for Tesla (that he later denounced citing environmental issues), crypto has fast gained popularity as major corporations have both invested in crypto and stated that they would accept it as payment – maybe not now, but soon.

Disadvantages of Investing in Crypto  

Highly volatile: Since cryptocurrency does not depend on external factors, its price is determined by its intrinsic value, which means that any stakeholder who has a significant investment in said cryptocurrency can move the market.

Potential for illegal activity: Cryptocurrency has potential for illegal activity – all thanks to the untraceable nature of its transactions. Recently, Colonial Pipeline, an American oil pipeline system was hacked by a ransomware group that demanded payment in cryptocurrency because crypto transactions are confidential and cannot be traced back to the receiver unlike bank transactions.

  • Securities

Securities can be defined as tradable financial instruments that are used to raise capital in public and private markets.

Which Securities Should You Invest in?

Securities are broadly classified under four categories:

Equity: Equity security means an ownership interest, for example – shares. These do not guarantee fixed returns but provide capital gain (or loss) depending on the rise and fall of the share price. Perhaps the most popular investment option across the globe – also serves as an effective method for public companies to raise capital.

Debt: Debt security signifies a “debt” that is to be repaid. Unlike equity, debt securities do not give the investor any ownership and are instead treated as loans, with interest, maturity, and renewal period. Debt securities have fixed returns. Examples include debentures, government/corporate bonds, etc. Debt securities are a good investment option for people who want low, fixed returns at little risk.

Hybrid: Hybrid securities include characteristics of both equity and debt securities. Example: optionally convertible debentures that can be converted to shares, or preference shares that do not give the shareholder any rights but are repaid first if the company is dissolved.

Derivatives: Derivatives are securities whose value is derived from an underlying asset. Such assets can be a commodity, indexes, stocks, goods, etc. Future, Forward, Swap, Option, and warrants are generally the different types of investment options.

Securities are of varying types and forms and typically constitute 70-80% of most investment portfolios. Securities can be influenced by an array of factors depending on what you choose to invest in.

The securities market ranges all the way from high-risk investments- yielding higher returns to low-risk investments – yielding lower returns.

  • Utility Assets

These refer to a group of companies that provide basic facilities such as water, sewage,       natural gas, etc. which constitute a major part of the US economy or any economy for that matter. Since these companies are responsible for providing basic amenities, they tend to do well even during recessions and general market downturns don’t seem to affect them providing their investors a steady return on their investments.

Advantages of investing in the Utility Sector

Stable, reliable investment option that remains unaffected by general market changes, Providing dependable returns on long-term investment.

Have an array of options ranging from ETF, bonds, to individual company stocks.

Disadvantages of Investing in the Utility Sector

Since most of the companies that come in this category are heavily dependent on their infrastructure, a steady inflow of cash is required to keep them functioning. Any faulty mechanisms or failure of large-scale equipment in certain circumstances could be catastrophic, undermining the smooth functioning of the company.

Despite being a monopolistic set of companies, any new entrant that starts providing the same services at lower prices would cause considerable mayhem and could possibly undercut its competitor’s financial strength. This would directly impact negatively on the returns they could provide to their investors.

On a Closing Note

As we move towards a future that promises expansion of technological prowess, investment in utility companies would yield satisfying returns.

With new projects in tow and cryptocurrency seemingly the future of financial transactions, we are at the brink of an investment/financial revolution that’s slowly gaining momentum. 

Thus, the time is ripe to invest in everything you hope the future would be made of, and let the magic of compounding lead you to its fruition.