Portfolio Management
Portfolio
Your portfolio is simply all of your investments. That’s it, really. If you have one investment account, and that account holds some stocks, some mutual funds, and some bonds, then all of those together would be your portfolio.
Portfolio management
Portfolio management refers to the process of selecting the best investment tools for an investor in terms of lowest risk and highest returns possible. It is an art of managing the investments of an individual so that he can earn maximum returns within a desired investment horizon. Another definition of portfolio management states it as a process of managing investments of an individual under the guidance of expert portfolio managers.
Portfolio management includes the following: understanding your goals, risk tolerance, and time horizon; selecting an investment or a group of investments that is in line with those overall goals; rebalancing your portfolio on a periodic basis; and reviewing your portfolio over time to monitor your progress towards those goals.
The Objectives Of Portfolio Management
A portfolio should ideally be well-diversified. That means you don’t have a large percentage of your portfolio concentrated into any one individual security. For example, if your overall portfolio is worth $10,000 and $8,000 is invested in the stock of just one company, that’s very poorly diversified with 80% of your portfolio invested into just one stock.
One of the important portfolio management consideration is your asset allocation. How much of your portfolio is allocated to equities, fixed income, or other asset classes? By having exposure to multiple asset classes, when one asset class is moving down, another one may be moving in a different pattern, thereby reducing the overall portfolio fluctuation. Your asset allocation is also a big factoring determining the overall risk and return profile of your portfolio. Portfolio rebalancing is an important exercise to keep your portfolio’s risk and return characteristics from drifting away from what your target asset allocation
example, we know that a 50% equity and 50% fixed income portfolios going to be a fairly balanced portfolio with a moderate amount of volatility. But let’s say that in the next year the 50% equity component does well and the 50% fixed income component does poorly. We might find that our new asset allocation has drifted to 60% equity and 40% fixed income. This allocation has a higher risk and return profile than a 50/50 portfolio. If we sold off some of our equity component to buy some more fixed income exposure, we could rebalance our portfolio back to 50/50
The primary objectives of portfolio management are to minimize risk and maximizing return. And other objects are as follows –
(1) Diversification of investment: In order to the diversification investment portfolio is taken. None only invest in a single asset invest in a various asset is less risky.
(2) Safety of capital: In order to esurient of an investment portfolio is taken.
(3) Fixed income: Portfolio management ensures a fixed income.
(4) Reducing risk: Portfolio reduces the risk of an investment.
(5) Investment mixed: Here investment into different assets ensured more safety.
(6) Wealth maximization: In order to maximize wealth portfolio is taken.
(7) Liquidity: The portfolio should ensure that there are enough funds available at short notice to take care of the investor’s liquidity requirements.
(8) Safety of the investment: The first important objective of a portfolio, no matter who owns it, is to ensure that the investment is absolutely safe.
Types Of Portfolio Management
The portfolio management process comes in various forms, each with its own set of characteristics:
● Active
Here, portfolio managers actively sell and purchase stocks, bonds, and other assets using quantitative or qualitative methods to maximize profits for their clients. They strategize to outperform the stock market index
by buying undervalued securities and selling them at higher prices.
● Passive
In this type, portfolio management services build and manage a fixed portfolio of index funds, such as ETFs corresponding to current market conditions. Even though these funds offer lower returns, they are more consistent and profitable over time.
● Discretionary
Investors appoint portfolio managers to make financial decisions on their behalf based on their goals and risk appetite to maximize earnings. It may also include paperwork and filing in addition to investment management.
● Non-Discretionary
In this case, portfolio managers can only advise on the best investment plans, while the decision-making authority rests solely with investors.
Process Of Portfolio Management
The following are some of the steps involved in managing an investment portfolio
1 Planning
Understanding the investor’s needs is the initial step in the process, which entails several stages, such as:Identifying portfolio management objectives and limitations. The goals may include capital appreciation, consistent returns, and risks, whereas restrictions are liquidity, timeframe, and tax Calculating the prospective risks, and profits of different asset classes in the capital market Strategizing asset allocation based on market behavior and investor goals
2 Execution
After having developed an effective investment plan, the portfolio manager proceeds with the following steps:
Identifying, analyzing, and selecting assets depending on their popularity, liquidity, profitability, etc Investing in the chosen portfolio of securities or other alternative investments to generate returns.Mixing up the portfolio based on investment limits and risk tolerance to minimize risks and losses
3 Feedback
Once investments have been made in a group of assets, it is crucial to keep track of their performances at regular intervals:
● Monitoring and evaluating the portfolio performance (risk and return) over a period to improve efficiency
● Revising and rebalancing the portfolio
● as per market conditions to maximize returns
Why is portfolio management important?
Portfolio management could result in higher returns on investment with fewer risks by considering multiple short- and long-term financing options over a set period. Investing in a variety of assets ensures the growth and stability of managed investments. Other benefits include capital appreciation, effective resource allocation, and a financially secure future.
