Portfolio construction

Portfolio Construction

An investment portfolio is a selection of financial assets that may include, among others, cash, bonds, shares, commodities and derivatives – both in local or foreign currency. Each having different levels of risk, return, liquidity, and cost. Building a portfolio is to decide within the universe of options the combination that may satisfy the investors’ goals.

That we know that maximizing profit stands at the core purpose of any investment.

This goal must also adapt to other investor requirements. This set of requirements and preferences is what we understand as a clients’ profile.

So, portfolio construction must start by outlining this profile through answering questions such as when and how frequently does our client require available liquidity? This liquidity requirement will determine our investor’s preference for short or long term assets and the share of liquid assets within its portfolio.

A second element is risk tolerance. The larger the potential return, the higher is the risk, which is not necessarily a negative feature but one that should be incorporated intentionally in an acceptable degree and bearing in mind our client’s profile.

Finally, portfolios with standard structures may have lower costs as far as commissions are concerned. At the same time, the impact of taxes and net returns should be considered early on.