Portfolio Management for Different Investment Instruments

Portfolio management refers to asset allocation and management of bonds, stocks, shares and other securities. The term portfolio is used for a pool of investment instruments, including cash, mutual funds, bonds, and others. The aim of portfolio management is to maximize returns and minimize risks within a specified period of time.

Types and Styles of Management

There are different types and styles of management, including non-discretionary, discretionary, passive, and active. With the non-discretionary approach, managers offer advice on different types of securities, but it is up to clients to make the final decision. Clients who choose the discretionary approach authorize portfolio managers to deal with all paperwork and make buy and sell decisions. The goal is to meet the client’s investment objectives within a specified timeframe. Passive portfolio management is another strategy, which is usually associated with exchange-traded and mutual funds. The portfolio is designed to mirror some market index, which is usually a specified index.

This strategy is also known as index or passive investing. It is used for different investment instruments, including hedge funds, commodities, bonds, and stock. Active portfolio management is a fourth strategy whereby a manager trades securities. Active managers use different strategies and tools, including forecasts and research. The main goal is to spot mispriced securities and outperform investment indexes. One of the main disadvantages of this approach is the fees associated with it. Another problem is that the manager can make poor investment decisions.

Asset allocation requires considerable investment expertise and time. Customers can choose from different types of portfolios, including dividend, balanced, risk-free, and portfolios in foreign currencies. Investors enjoy a number of benefits, among which personalized approach. Portfolio managers keep customers informed of the long- and short-term objectives and the results. They offer detailed information and periodic reports, keeping clients updated on benchmark comparisons, performance, and holdings. In addition, managers offer analysis of withdrawals and contributions and other important details. Portfolio managers conduct research and analyze different markets and sectors. They specialize in derivatives, currencies, structured finance, emerging markets, and equities. Managers develop a portfolio based on the investor’s objectives, risk tolerance, and time horizon. The first step in this direction is to evaluate your business objectives and financial situation. To this, the manager may work in cooperation with business managers, lawyers, and accountants.

Tolerance for risk is an important factor, which varies based on the investor’s financial situation and goals, level of income and income requirements, expenses, age, and others. A 40-year old SEO in a large corporation will have a higher risk tolerance than a 65-year old retiree or a single mother who works two jobs and lives in a rented apartment. People with high income requirements often have higher tolerance for risk. Conservative investors are usually individuals who want to have a portfolio that offers a steady source of inflation-adjusted income. They opt for a balanced portfolio that includes no risk and low risk investments. The types of instruments to choose from include bonds, certificates of deposit, money market accounts, and savings accounts. High risk investors, on the other hand, opt for risky asset classes such as sector, small-cap, and growth mutual funds. There are also pyramid and pump and dump schemes that are quite risky. They involve the sale of over-priced securities, usually in the form of penny and micro-cap stocks.

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