How to create a diversified investment portfolio?

In 1952 the American economist Harry Max Markowitz published an article in The Journal of Finance, a prestigious report by the American Finance Association that now reaches more than 8,000 academics, finance professionals, libraries, governmental and financial institutions around the world.

Titled "Selection of Portfolios", the article shows a mathematical model devised by Markowitz that showed how investors could get the lowest possible risk for a certain rate of return. This work laid the foundations for the Modern Theory of Portfolio Elaboration that is used up to the present.

What is investing?
Any expense made in order to obtain a profit (return) can be considered as an investment. Buying a more efficient printer for the office is an investment, since it will save us time, costs, or both.

Buying a batch of folders is not an investment, it is a necessary expense. Buying a paper of better quality, that does not clog the printer and that, in addition, is cheaper, is an investment. From this point of view, all the expenses of a person or company can be investments in the short, medium or long term, if they suppose some type of improvement in the efficiency.

In the specific field of finance, investment means, in simple terms, putting money in an asset, or financial instrument, hoping to obtain more money, profits, performance, something similar to what in marketing is called ROI (return of investment ), or return on investment.

It is the particular needs and objectives that determine the type of investment that will be made, but you should always look for options that allow, at least, to maintain purchasing power while obtaining good returns.

Investment portfolio
An investment portfolio, also called an "investment portfolio", is nothing more than a selection of assets or securities that are quoted on the stock market, in which a person, natural or legal, decides to place, or invest, part of their money.

Before deciding on any specific asset or instrument, the investor must take into account certain basic aspects, such as, for example, the level of risk he is willing to take and the objectives he seeks to achieve with his investment.

The selection process implies having a prior, clear and sufficient knowledge of the instruments available in the stock market to choose the most convenient options, so that the investor's expectations are satisfied.

Steps to build an investment portfolio
As a general rule, an investment portfolio is formed according to the risk profile of the investor. The most common way to define the risk profile is to fill out a questionnaire with personal or company information, such as the level of income, assets, age, information that reveals if you have a conservative, moderate or aggressive risk profile.

To develop an investment portfolio we have to:

Determine the investor's objectives . In this step, the money available for the investment is defined, which is the expected return and the level of risk, although the latter two are usually interdependent. Here it must be taken into account that investors can be natural or legal persons, and the way in which the level of risk is defined is different in each case.
Select financial instruments . In general, a portfolio will consist of a fixed-rate portion, such as bonds and a variable-rate portion, such as shares.
Select economic sectors and companies . At first, economic sectors can be chosen by investor preference or as a hedge.
Measure the risk and the profitability of the assets . Here a statistical analysis of the historical data of different actions is included to determine their behavior during the last years. In this way we observe its profitability over time, expected profitability and its variance, in order to determine the risk of each asset.
Optimize the portfolio Once the assets that are going to participate in the portfolio have been defined, they must be combined in a way that allows maximum profitability at a given risk level. Markowitz formulas are applied to achieve this.
Plus500 offers CFDs in cryptocurrencies for your portfolio
Plus500 is a Contracts for Difference platform designed for individuals who act on their own as financial operators. The company was founded in 2008 (when Bitcoin was created), and provides users with the ability to configure their investment portfolios including Contracts for Difference in cryptocurrencies.

Due to the rise of digital currencies and the interest of investors, the company has incorporated more cryptocurrencies to operate with these instruments.

Plus500 offers Contracts for Difference with the following cryptocurrencies: Bitcoin (BTC), Ethereum (ETH), Litecoin (LTC), Bitcoin Cash (BCH), IOTA (MIOTA), Monero (XMR), Neo (NEO), EOS (EOS) and Ripple (XRP).

The Plus500 investment platform handles several deposit methods: bank transfer, credit / debit cards (Visa, MasterCard), Skrill and PayPal.