In the past two years, the concept of "stocks are not as good as funds" has taken root in people's hearts. Publicly offered funds have multiple advantages and are one of the best asset allocation tools for ordinary investors.

Funds are tools for investment. Some people make money by buying funds, while others lose money. If you master the skills of fund investment and stand on the shoulders of giants, it will allow your investment to "ride the wind and waves."

During the process of fund investment, more and more people mention fund portfolios. So, what is a fund portfolio, and why is it necessary to establish one?

01

What is a fund portfolio?

The purpose of establishing a fund portfolio is to achieve steady returns or to exceed the long-term average market returns. To achieve this goal, an investment strategy is formulated, and multiple funds are purchased systematically.

02

What is the difference between a fund portfolio and buying a single fund?

A single fund may perform particularly well at a certain stage, adapting to the market style of that time. However, when the market style changes, its performance may become relatively low. Investing in a single fund makes it difficult to grasp the market trends at every stage. Through portfolio investment, the volatility of the portfolio can be reduced, the stability of the investment can be enhanced, and the steady growth of assets can be achieved.But a fund portfolio is not simply a mechanical combination of a few funds; it involves a specific investment strategy. Randomly buying a few funds does not constitute a portfolio. A fund portfolio is guided by a unified strategy, such as which funds to allocate to achieve the desired return, what the allocation ratio should be, and under what circumstances rebalancing is necessary.

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03

Why establish a fund portfolio?

Diversify risk: Investing in a single fund may face a blow when a black swan event occurs, whereas a portfolio investment in different types and directions of assets can effectively diversify risks.

Reduce asset volatility: A single fund, especially equity funds and equity-biased hybrid funds, tends to have higher volatility. Portfolio investment can reduce fluctuations, enhance the investor's holding experience, and objectively improve investment returns.

Increase investment returns: Investing in a fund portfolio can reduce the volatility of the asset portfolio, improve experience and returns. "Asset allocation is the world's last free lunch," and it has been proven that the returns from effective portfolio investment are better than the long-term returns of a single fund.

04

How many funds should be chosen?

How many funds should be included in a fund portfolio? Having too few funds may not achieve the effect of diversified investment, while having too many may not meet the investment objectives. There is a high degree of homogeneity among funds; it is sufficient to select one fund of the same type, and not to combine funds for the sake of forming a portfolio, as this may not achieve the desired effect of portfolio investment.Common Strategies for Fund Portfolios

(1) Diversified Type Allocation: This strategy involves constructing a portfolio with different types of funds to reduce the overall risk. A typical example is a combination of equity funds and bond funds, where the two different types of assets are almost negatively correlated.

(2) Core-Satellite Portfolio: The main part of the portfolio is chosen from funds with a stable style, while the secondary part is selected from funds that have performed well in a particular phase. For instance, an index fund combined with a flexible allocation fund can result in an overall stable performance.

(3) Style Balanced Portfolio: This involves combining funds of different styles to achieve risk diversification and balanced allocation. Examples include a combination of large-cap funds and small-cap funds, or growth funds and value funds. Such portfolios tend to have lower volatility and long-term expected returns that exceed those of average portfolios.

(4) Flexible Adjustment Portfolio: This strategy involves rotating the allocation between different style types based on the performance of the funds. These portfolios are highly flexible but also more challenging to manage, with higher expected returns.

How to Evaluate Fund Portfolios

Return Performance: For any investment, return is one of the most important considerations. It is not only important to look at short-term returns but, more importantly, long-term returns. The process of achieving returns should also be considered.

Annualized Volatility: This is used to measure the volatility risk of the investment target. It is best to compare this indicator with similar types of investment targets, as the annualized volatility can vary greatly between different types of investment targets. It reflects the overall volatility of the portfolio and can be compared with the CSI 300 index to reflect the risk profile of the portfolio.

Maximum Drawdown: Maximum drawdown represents the maximum loss that could be faced when purchasing the portfolio from a peak. It is a comprehensive reflection of the portfolio's volatility risk.Sharpe Ratio: Reflects the efficiency of returns when an investment takes on risk. The larger the Sharpe ratio, the higher the portfolio's returns and the smaller the volatility.

07

How to Build a Fund Portfolio That Suits Yourself

Investment Objectives: When making an investment, the first thing to determine is the return target. Different return targets and different types of capital require different investment strategies.

Investment Time Horizon: This refers to the short or long term of the funds. The investment strategies for long-term and short-term funds are also different. Long-term funds can withstand greater fluctuations and can have a higher allocation to equity; for short-term funds, the ability to withstand fluctuations is lower, so a more conservative investment strategy should be adopted.

Risk Tolerance: Each investor has a different capacity to bear risk. The most important thing in establishing a fund portfolio is to adapt to the investor's risk tolerance to create an appropriate asset combination, otherwise, it will deviate from the original intention of portfolio investment.

The content above belongs to the original author and does not constitute any investment advice. Wealth management involves risks, and investment should be approached with caution.