portfolio investment

Portfolio investment involves purchasing securities, such as stocks and bonds, as opposed to direct investment. The goal is to grow or preserve wealth through diversification, which means spreading investments across various assets to reduce risk. Traditional investments include stocks, bonds, and cash, while alternative investments encompass a broader range like real estate, commodities, and collectibles.123

Modern portfolio theory (MPT), developed by Harry Markowitz, emphasizes diversification and aligning investments with an individual's risk tolerance. It suggests that a well-diversified portfolio can offer a better risk-return trade-off than concentrating on a single asset. However, over-concentration in one asset or sector can lead to significant losses if that asset or sector underperforms.34