Construction of an Investment Portfolio

Constructing an investment portfolio should be based on the investor’s risk tolerance and suitability. There are different asset classes that make up an investment portfolio. Asset classes fall under two major categories: Equity Securities and Debt Securities/Fixed-income. 

Asset Class - Equity Securities 

1. Growth Stocks - Growth stocks have a high expectation of earnings growth. 

2. Income Stocks - Income stocks have a high dividend payout. 

3. Value Stocks - Value stocks are usually stocks that are undervalued by the market. 

4. Defensive Stocks - Defensive stocks remain stable and have consistent earnings regardless of the current economic condition. 

5. Cyclical Stocks - Cyclical stocks tend to move in relation to the changes in the economic cycle. Ex. manufacturers and construction 

6. Sector Stocks - Sector stocks are industry specific. Ex. technology stocks, airline companies, etc. 

7. Speculative Stocks- Speculative stocks are high risk and have wide fluctuations. 

8. Blue-Chip Stocks - Blue-Chip stocks are leaders in their industry. 

Asset Class - Debt Securities/Fixed-income

1. U.S. Government Debt - There are three major debt instruments that the U.S. government issues: 

   a. Treasury bills

   b. Treasury notes

   c. Treasury bonds

     2.  Corporate Bonds - Corporate bonds provide investors with a fixed-income stream. 

3.  Municipal Bonds - Municipal bonds are suitable for investors who are in a high tax bracket.