What is Portfolio Management?

WHAT IS A PORTFOLIO?

A collection of one or more similar or different investment vehicles.

WHAT IS PORTFOLIO MANAGEMENT?

It is the art and science of making investment decisions of mix and policy, asset allocation, balancing risk and performance, and matching investments to objectives.

THE FOUR MAIN TYPES OF PORTFOLIO MANAGEMENT

• Active Portfolio Management: hands-on approach with investing. PM’s charge percentage for AUM (Assets Under Management). The goal is to outperform some market benchmark usually characterized by an index.
• Passive Portfolio Management: involves selecting a group of investment vehicles that usually only track and index. The goal is to mirror the returns of the market over time. Use Modern Portfolio Theory (MPT) to optimize the mix.
• Discretionary Portfolio Management: Full control is given to PM to decide what to do with the investors cash
• Non discretionary Portfolio Management: reduces a PM’s job to that of a financial advisor.

THE THREE MAIN ELEMENTS OF PORTFOLIO MANAGEMENT

• Asset Allocation
• Diversification: spreading risk and reward within an asset class. Made across various asset classes.
• Rebalancing: Used to return a portfolio at regular intervals to its original target allocation. Used to help maintain the original asset mix.

An Example of one of my portfolios asset allocation into different investment vehicles

CHARACTERISTICS OF INVESTMENTS

• Return: Expectation of return
• Risk: Examples; loss of capital, delay in repayments, non payment of return, variability in repayment, and defaults. The higher risk the higher the expected return.
• Security: certainty of return of (initial) capital without loss of time or money
• Liquidity: how easily an investment can be sold