What type of financial instruments can be included in a portfolio of securities?

A portfolio of securities can benefit from a diverse range of financial instruments, which includes both debt and equity instruments. Debt instruments, such as bonds and debentures, provide fixed returns and have priority over equity in the event of liquidation. Equity instruments, such as stocks, represent ownership in a company and can offer capital appreciation as well as dividends.

By incorporating both types of instruments, a portfolio can achieve a balance between risk and return. Debt instruments tend to be less volatile compared to equities and can provide stability during market fluctuations. In contrast, equity instruments can contribute higher growth potential over the long term. This combination allows investors to tailor their portfolios according to their risk tolerance and investment goals.

In contrast, limiting a portfolio to only one type of financial instrument, such as stocks of large companies, government bonds, or real estate investments, could significantly restrict its potential for diversification, which is critical for mitigating risk and enhancing returns.