Portfolio ManagementPortfolio Management – Investing Concept Among Many
Portfolio management is an easy concept in itself, however the trick is in understanding the numerous investing concepts and strategies that portfolio management entails. A portfolio is a collection of investments held by either an institution or a private individual. Portfolio management involves deciding what assets should be included to build a strong portfolio. This can differ based on the individual investor’s goals and the ever changing economy. When building your portfolio it is important to maintain portfolio diversification, meaning that the individual investor should own several assets including stocks and bonds, gold certificates (gold investing), futures contracts, real estate, options, warrants, and any additional items expected to maintain value. Portfolio management involves the use of many investing concepts, some of which are explained in this newsletter.
Portfolio management involves asset allocation which is essential in diversifying your portfolio. You must decide which assets to purchase, when to purchase them, how many to invest in, and how many should be in equities vs. fixed income investments. Additionally the individual investor must anticipate the potential return on investment and the volatility of each asset class. There are three different types of asset allocation utilized in portfolio management. These include long-term strategic and tactical. Long-term is based on a term of more than 25-year cycles, strategic is based on time periods of five to ten year return expectancies, and tactical is based on expected one-year returns. Investors will agree that there are also four types of asset classes. These include stocks, bonds, money markets and real estate. When used correctly, each asset class is a valuable tool to the investor to build a successful portfolio through the use of portfolio management.
Portfolio management also includes the concept of investment management. Investment management involves the management of securities and assets in order to meet investment goals to benefit the individual investor. It is important that the individual investor keeps up with changing economic conditions to serve the investment goals. One way this can be done is through financial analysis, but may also include, asset selection, and stock selection (in creation of a stock portfolio), all together combined with continuous examination of investments all of which are done through portfolio managment.
There are important concepts to follow during portfolio management in order to control investment risk. These include reallocation of assets and the rebalancing of assets in your portfolio. Rebalancing includes the buying and selling of assets in order to restore your portfolio to its original target allocation. This requires that the investor sell those assets that are performing well and buy those assets that are currently out of turn. The investing strategy important her