When it comes to investing, a holding refers to the contents of your investment portfolio. It can describe your strategy, too. But typically, when holdings are being discussed, we’re talking about assets.
What’s an asset?
An asset is anything that holds value. More specifically, it’s something of value that can be bought or sold, or otherwise converted to cash.
What are holdings?
Holdings take many forms, and for that reason, don’t have one specific definition. The easiest way to grasp the concept of holdings is to think of them as assets you “hold” — These can include stocks, bonds, ETFs, mutual funds, cash, or just about any other investment product you can think of.
Your personal holdings can also include your retirement portfolio, or real estate if you own a home.
Another wrinkle. There are also holding companies.
It may sound strange, but these companies are created with no intent to produce goods or services in and of themselves. Instead, they exist as a sort of giant container — an umbrella under which other companies or properties are held.
In short, a holding company is an entity created for the sole purpose of holding other assets, including ownership, or stock, in other businesses. These holding companies make money when their holdings increase in value.
One of the most famous holding companies is Berkshire Hathaway, which was a textile company when it was acquired by Warren Buffett in the early 1960s. Today, it’s a holding company for several dozen other businesses.
Diversify your holdings
Let’s get back to you and your personal holdings.
Because you want your holdings to provide a return, it’s important to make sure your holdings are diversified.
Diversification means that your holdings aren’t all of one type or product — that you’re not putting all of your eggs in one basket, in other words. By diversifying your holdings, you’re mitigating risk.
Spreading your money around into different holdings can shield you, at least in part, from market swings. If you have all of your money in stocks, for example, a market drop will hit you very hard.
But if you’re diversified and have a healthy mix of bonds in your portfolio, the ride can be smoother.
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