Portfolio Management: An Introduction To Portfolio Management

Introduction

Portfolio management refers to managing money of an individual under the expert guidance of portfolio managers. In a layman’s language, the art of managing an individual’s investment is called as portfolio management.

Need for Portfolio Management -

Portfolio management presents the best investment plan to the individuals as per their income, budget, age and ability to undertake risks. It minimizes the risks involved in investing and also increases the chance of making profits. Portfolio managers understand the client’s financial needs and suggest the best and unique investment policy for them with minimum risks involved. Portfolio management enables the portfolio managers to provide customized investment solutions to clients as

• Sometimes portfolio managers are temporarily allowed to deviate from the strategic asset allocation based insights related to perceived asset mispricing. These temporary deviations are called Tactical Asset Allocations (TAA).

3. Feedback

• Analyze returns through performance measurement.

• Determine the sources of returns through performance attribution.

• Use the results of the portfolio measurement and performance attribution to make a performance appraisal of the portfolio manager. This appraisal determines if the portfolio manager should be retained or fired.

• Over time the portfolio needs to monitor the investor’s changes and the capital market expectation changes to rebalance the portfolio as appropriate.

Personal Portfolio Management

A personal portfolio management comprises of the management of all the investments and securities held by an investor. The procedure of managing all the securities and assets is very complicated and thus, many big investors take the services of portfolio managers that assist in managing their portfolios. The personal portfolio managers utilize their skills and market knowledge and take help of portfolio management softwares for managing the investor’s

The risks and rewards are in essence interrelated to each other where tolerance of the risks tends to influence or even dictate the rewards. An investor whose goal is to maintain his/her current assets instead of growing them, he/she will keep only safe and secure investments in the portfolio.

Diversification of the portfolio: The diversification of the portfolio is required to minimize the risks and maximizes the returns in the long term. It is preferred to diversify your portfolio however; one should take care to avoid over-diversifying. The diversified portfolio led to smoothing of peak-and-valley pricing effects caused by the fluctuations in the normal market and in surviving long term market downturns. The over diversification can become counterproductive so it needs to be avoided.

Avoiding the gambling: As an investor, one should avoid portfolio that relies on high-risk, high-return investments. It is because; the higher speculative investment can lead to conditions where investor may require selling his holdings prematurely at a loss due to liquidity crisis and expected returns won’t materialize.

Portfolio Management