INVESTMENT PORTFOLIO MANAGEMENT
Investment portfolio management is an important tool used to accomplish a investors objective while managing risk. It is the management of financial investments by professional money managers, financial advisors, and the individual investor. Portfolio managers use a variety of strategies to create portfolios that are tailored to their clients individual needs, such as risk management, diversification, and tax optimization.
Portfolio management is the process of selecting, initiating, monitoring and evaluating assets as part of an overall investment strategy. A portfolio manager typically assesses a company’s financial performance and related agreements, while closely monitoring and assessing potential risks or opportunities.
The goal of portfolio management is to maximize returns from an investor’s assets to meet the desired investment objectives. In practice, this means measuring and managing risk to ensure prudent investing. Portfolio managers must consider the many types of risk associated with investments and account for the duration of the investment in order for them to make sound decisions. This approach ensures that investors are better protected from market fluctuations, reduce the chances of loss due to ill-conceived investments, and capitalize on opportunities to maximize returns.
The risk management aspect of portfolio management is one of the most important as it determines how an investor will be able to meet their objectives. Risk management establishes the framework of acceptable risk and acceptable reward, and allows the portfolio manager to judge potential investments against a set of pre-determined criteria, such as asset class, geographical location, and level of expected return.
Portfolio management focuses on ensuring that all assets are allocated according to an individual’s investment goals, attitudes towards risk, and time horizons. Portfolio managers review the portfolio frequently in order to analyze the potential returns, adjust allocations over time, and react to changes in the markets.
The process of portfolio management starts with an evaluation of the investor’s objectives and risk tolerance. Once these are determined, the portfolio manager can move on to select the appropriate asset classes, financial instruments, and securities to build the portfolio. The manager then establishes appropriate performance criteria and adjusts the portfolio accordingly. Portfolio managers must also be aware of any tax implications their choices in investments will have.
Finally, when the portfolio is established, the portfolio manager performs periodic monitoring and rebalancing of the portfolio to ensure that the asset allocation stays in line with the long-term investment strategy. This process involves accounting for changes in market conditions, economic trends, and investor objectives.
Portfolio management requires careful planning and continual monitoring to ensure that the portfolio continues to meet the investor’s objectives. Professional managers use a variety of methods, including the calculation of risk adjusted return on investment (ROI), to help them make wise and profitable investment decisions. But even with experienced portfolio managers at the helm, markets remain unpredictable and therefore there is no guarantee of success. Proper portfolio management can go a long way to helping an investor reach their goals and realize their financial dreams.
