Understanding Portfolio Investment within a Company Structure

Portfolio in a business sense means a group, range or selection of interests where investors could commit some financial risks, while a portfolio investment simply means a diversified range of business risks where an investor has committed his money in exchange for profits.

Broadly speaking, some examples of portfolio investments include government bonds, shares and stocks, debentures, and asset acquisitions.

Simple speaking, investors buy government bonds which are sold off and converted into liquid cash when the government needs money, giving the investors the opportunity to make money with additional interest on their investments. Shares and stocks are investments made to buy part of a company’s business in return for annual profits, and debentures are money loaned to a company in return with additional payable interests.

Portfolio Investment

Company shares and stocks are traded by the stock exchange and managed by stock brokers. Stock brokers sell and buy company shares and stocks on the floor of the stock exchange via a bidding or auction system. Stock brokers also establish brokerage firms to help investors buy or sell desired shares in given companies with a view to making money for the investor.

Investors make money on their shares if the company they bought into is performing excellently and making profits in the market, a situation that drives up the value of its shares in the stock exchange market. When the value of such company shares goes up, the investor makes profits when he sells his own shares of the stocks. But he could lose money if he sells when the prices of the company shares drop in the financial market.

When a company or business is doing well, its stocks become a hot cake in the market and investors want to buy into it, creating demand which drives up the stock values. But too high a stock performance may cause stock prices to go very up, making investors unable to buy and creating a situation where it eventually crashes as other sell off their shares.

A bullish market is when the stock market performs very well with high prices over a period of time, and it is a bearish market when prices drop as a result of stock performance.

On a side note, shareholders of a company are co-owners of a company while debenture-holders are simply creditors to the organization. To this end, shareholders are permitted to vote at annual AGMs or even elected to serve as director within the company, but a debenture-holder cannot do both.

Shareholders receive dividends which is a share of the company’s profits but a debenture-holder is only given a fixed interest rate on his investments. A shareholder gets no dividend if no profits are made but a debenture-holder on the other hands must be paid interests whether the company makes profits or not.

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