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What Is Portfolio Investment?

by Olufisayo
What Is Portfolio Investment

Portfolio investment is strictly connected with a portfolio diversification process. It is part of the capital account on the balance of payments statistics.

Some examples of portfolio investment are:

  • Government bonds
  • Shares and stocks
  • Debentures and
  • Acquisition of assets

Brokerage firms are most commonly thought of in relation to the sales and purchase of stock/shares. Stock can help your money grow in two ways. If the share price of your stock goes up, you can draw a profit also known as a capital gain – when you sell your shares.

Some stocks pay investors a dividend, which is a portion of the company’s profits, on a regular basis.

Stock prices are driven by supply and demand. If a company is doing well or its shares are selling at a fair price, many investors may buy its stock, creating demand. Demand drives up the price. If the company is not doing well or the share price has been driven too high investors may stop buying or begin selling. Stocks are bought and sold at the stock market.

This is where public companies seeking capital meet investors who seek profits.

At the stock market, each stock is registered with a particular exchange. Today there are stock markets all over the world. Stocks are bought and sold on a daily auction conducted by stock traders and specialists.

When a stock market does well and prices rise over a period of time, it’s called a bull market. When prices decline for a period of time, it’s called a bear market.

Differences between Shares and Debentures

  • Shareholders are effectively the owner’s debenture-holders are creditors.
  • Shareholders may vote for Annual General Meetings (AGMs) and be elected as directors; debenture-holders may not vote at AGMs or be elected as directors.
  • Shareholders receive profit in the form of dividends; debenture holders receive a fixed rate of interest.
  • If there is no profit, the shareholder does not receive a dividend; interest is paid to debenture-holders regardless of whether or not a profit has been made.

Photo by Mikhail Nilov from Pexels

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