Portfolio management is the
art and science of selecting and overseeing a group of investments that meet
the long-term financial objectives and risk tolerance of a client, a company,
or an institution.
Some individuals do their own investment portfolio management. That requires a basic understanding of the key elements of portfolio building and maintenance that make for success, including asset allocation, diversification, and rebalancing.
Types of Portfolio Management
Broadly speaking, there are only two types of portfolio management strategies: passive investing and active investing.
management involves attempting to beat the performance of an index by actively
buying and selling individual stocks and other assets. Closed-end funds are
generally actively managed.
Key factors of portfolio Management
1. Asset Allocation
Asset allocation involves spreading the investor's money among different asset classes so that risks are reduced and opportunities are maximized.Stocks, bonds, and cash are the three most common asset classes, but others include real estate, commodities, currencies, and crypto.
Diversification involves owning assets and asset classes that have been shown over time to move in opposite directions. When one asset class performs poorly, other asset classes usually prosper.This provides a cushion to your portfolio, offsetting losses.
Rebalancing is used to return a portfolio
to its original target allocation at regular intervals, usually annually. This
is done to reinstate the original asset mix when the movements of the markets
force it out of kilter.