What is portfolio management?

To understand what portfolio management is you need to know the meaning of a portfolio. A portfolio is the collection of investment tools such as shares, bonds, mutual funds, stocks, funds, and so on. It depends on the investor’s income, budget, and time. Therefore, portfolio management is the science and art of selecting the correct investment policy for individuals. The right investment policy will be the one that will give maximum return and have minimum risks. Also, in simple terms, you can define it as the art of managing an individual’s investment. Portfolio managers are the experts that guide the investors for portfolio management. Also, portfolio management requires the ability to make correct decisions, to understand the opportunities and threats’ strengths and weaknesses in terms of investment.

Need for Portfolio Management

The main goal of portfolio management is to help select the correct investment plan for the client so that he can gain profit. Also, minimizing the risk is essential. Portfolio managers suggest the plans according to the needs of the client. For this, they have to look into the budget, income, and age. Also their ability to take risks. After this, the suggestion of the best investment plan is made. Moreover, portfolio managers can also provide the clients with customized investment plans according to their requirements.

Types of Portfolio Management

There are four types of portfolio management:

Active Portfolio Management

In this, the manager fully invests in generating profit for the client. Therefore, they are involved actively in buying and selling the securities for maximum return. For this, they buy stocks from where they are depreciated and sell them where the value increases.

Passive Portfolio Management

The managers deal with the fixed profile to match with the latest market in this type of management. It has low but steady returns. Profitable for investors in the long run.

Discretionary Portfolio Management

In this type of management, the investor gives power or authority to the portfolio manager to manage all the finances and take decisions on his behalf. The manager is free to choose whichever strategy he likes for the client according to his needs.

Non-Discretionary Management

It is exactly the opposite of discretionary portfolio management. In this type of management, the portfolio manager can only advise the client. Clients can accept or reject the advice according to wish. But the financial experts advise the clients to think upon the advice given by the managers before rejecting it.

Elements of Portfolio Management

  • Asset Allocation

It is the process of putting money in volatile and non-volatile assets. The way of doing so is such that the returns are of considerable amount with minimum risks. Financial experts say it must be positioned as per the financial goals and risk-taking factor of the investor.

  • Diversification

This method ensures that an investors’ portfolio is well-balanced and diversified across different investment avenues. With this, the investors can rebuild their collection significantly. It is the perfect blend of risk and reward. Also, it helps to cushion risks. Moreover the generation of risk-adjusted returns gradually.

  • Rebalancing

It is for bringing the portfolio to its original target allocation. Usually, it is an annual thing. It is an important aspect for profit-generating. It is to rebalance the ratio of portfolio elements to generate higher returns at minimal loss. Rebalancing annually helps the investors to expand the opportunity of growth in potential sectors. Also, experts suggest applying this method to be in position with the market requirements.

Therefore, portfolio management is essential for your investment. The goal is to generate maximum profit at minimum risks. Hence it will help you to achieve this goal.

Leave a comment

Solving Your Financial Worries!