What is a portfolio in finance?

The correct understanding of a portfolio in finance relates to the concept of it being a collection of financial investments such as stocks, bonds, commodities, and cash equivalents. This definition highlights that a portfolio is not just one type of investment but rather a diverse set of assets owned by an investor.

The purpose of a portfolio is to diversify risk—by holding a variety of assets, an investor can minimize the impact of any single investment's poor performance on their overall financial situation. Portfolios are tailored to individual financial goals, risk tolerance, and investment strategy.

While other options present ideas related to financial concepts, they do not define what a portfolio is. For instance, the suggestion of a savings account with a fixed interest rate pertains to a specific financial product rather than a collection of assets. Similarly, referring to an individual stock or bond encapsulates only a single investment rather than the broader scope of multiple investments indicated by a portfolio. Lastly, a management strategy for financial planning is much more general and does not specifically convey the idea of a collection of various investments that constitute a portfolio.