What your portfolio is made of

Everything in one place

Your portfolio is the whole of what you have invested: every share, fund or bond you own, and the cash waiting beside them in the same account. Each thing you own is a holding, also called a position — 20 shares of one company, say, or 8 units of an ETF.

A holding’s market value is simply the quantity times the current price. The portfolio’s value is the market value of every holding, plus the cash.

Cash counts. It is part of what you have, it is what your next purchase will be paid with, and money from a sale or a dividend lands there. A portfolio that is a fifth cash behaves differently from one that is fully invested.

Weights: who carries the portfolio

A holding’s weight is its share of the total value. In the portfolio above, Company A is $1,200 of $4,000, or 30%. ETF B is 50%, and cash is 20%. Together they always add up to 100%. The whole picture — how the money is divided between holdings, kinds of investment and cash — is your allocation.

Weight matters because it tells you how much a move in one holding moves you. If a holding falls, the portfolio falls by the holding’s weight times the holding’s fall.

In the figure, asset A falls 30% while B and C stay still. Move A’s weight up and the damage to the whole grows with it; at 10%, a 30% fall costs the portfolio 3%. This is diversification seen from your own side: a large weight makes one holding decide much of your result. Real holdings often fall together, so the figure shows the simplest case, not the worst.

Weights do not stay where you put them. A holding that rises becomes a larger share of the portfolio by itself, and one that falls becomes smaller. Some investors trade from time to time to bring the weights back to the ones they chose — this is called rebalancing. Whether and how often to do it is a choice, and every trade can carry costs.

What you paid: cost basis and average cost

To know whether you are up or down, you need a starting point: what you paid. The total you paid for the shares you still own is your cost basis. If your broker charged a commission on a purchase, it is usually counted as part of the cost.

When you buy the same company more than once, at different prices, the useful number is the average cost — the cost basis divided by the number of shares.

Paper gains and real ones

Suppose the share price is now $48. Your 25 shares are worth 25 × $48 = $1,200. Against a cost basis of $1,100, you are up $100, or about 9.1%.

That $100 is an unrealized gain. It exists only at today’s price: tomorrow it can be larger, smaller, or a loss. Nothing has been locked in.

When you sell, the part you sold becomes a realized gain — fixed, and no longer affected by the price.

Average cost is not the only method. Some brokers and tax rules treat the oldest shares as sold first. In the example that would mean selling the 10 shares bought at $50: a realized loss of $20, and an unrealized gain of $120 on the 15 shares bought at $40. The total is the same $100; only the split between realized and unrealized changes. Which method applies to your taxes depends on the rules where you pay them.

Your full result on a holding is its realized gain, plus the unrealized gain on what you still hold, plus any dividends it paid you.

In short

A portfolio is your holdings plus your cash. Each holding’s weight is its share of the total and tells you how much it can move you. Cost basis is what you paid for what you still hold; average cost spreads it across the shares. Until you sell, a gain is unrealized and moves with the price; selling makes the sold part realized. None of these numbers says how well you have done overall — that needs one more idea, in the next lesson.