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Question:


What exactly is a portfolio? Does it refer solely to my investments?
-CaliGina


Answer:


A portfolio is different things to different people. If you’re like many, the term would mean your tangible net assets, not counting those for personal use. To put it another way, your portfolio is everything that could be sold for cash without affecting your lifestyle, less any debt you have. Any individual stocks or bonds that you may hold in your own name would be part of your portfolio. So would your stakes in mutual funds or other pooled investments. Your share of the assets in your employer’s 401(k) plan, if there is one, would be another piece. The same goes for cash in the bank, as long as it’s not for household expenses or otherwise earmarked for use in the fairly near future, as well as assets like precious metals or real estate that you don’t live in.
 
What these examples have in common is material worth that would be apparent to an independent third party; that distinguishes them from items like family photos that may be worth a lot to you but to few others. One valuable asset that some people used to consider part of their investment portfolio and that they probably wish they had not is their home. It was almost a fad in the late 1990s to take out a second mortgage or borrow against a home equity credit line to finance an expedition into the stock market. Then technology stocks collapsed in 2000, the broader market followed soon after and a few years later the housing market tanked. A good rule of thumb is that if an asset is something you can’t take risks with – even prudent, sensible risks – then it’s not an investment.
-Conrad de Aenlle



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