Portfolio Management

Portfolio management is the process of creating and maintaining a selection of investments.
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The goal of portfolio management is to make the highest possible return relative to an acceptable risk level. Portfolio management can be active or passive and consists of selecting assets to achieve a defined financial objective for a specified amount of time. Portfolios may be managed internally or outsourced to a financial advisor.

Assets are selected that will produce a portfolio with investment exposure that aligns with the portfolio objectives. Through asset allocation, investments across multiple asset classes are chosen.

Portfolio management may be aggressive or conservative, depending on the risk profile of the investor. Aggressive portfolios are typically heavily invested in equities and are likely to experience more volatility but offer a potentially greater return for bearing the additional risk. Conservative portfolios generally are more diversified with higher exposure to bonds and cash. Conservative portfolios are risk-averse and tend to offer smaller returns.

Portfolios may be rebalanced to adjust for changing market conditions or to reflect the new goals of an investor. Rebalancing a portfolio modifies the allocation to holdings by closing existing positions and reallocating capital into different sectors or asset classes.

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FAQs

What does a portfolio manager do?

Portfolio management is the process of selecting and maintaining a collection of investments. The goal of portfolio management is to create the highest possible return relative to an acceptable amount of risk. Portfolios may be managed internally or outsourced to a financial advisor.

Portfolio managers are responsible for managing all of the assets included in the portfolio. Assets are selected that will produce a portfolio with investment exposure that aligns with the portfolio objectives.

Portfolio managers typically charge a fee for their services. The payment structure may be a fixed annual amount or a variable percentage based on the portfolio’s value.

What is a portfolio management example?

Portfolio management may be aggressive or conservative, depending on the risk profile of the investor.

Aggressive portfolios are typically heavily invested in equities and are likely to experience more volatility but offer a potentially greater return for bearing the additional risk.

Conservative portfolios generally are more diversified with higher exposure to bonds and cash. Conservative portfolios are risk-averse and tend to offer smaller returns.

Portfolios may be rebalanced to adjust for changing market conditions, reallocate capital, or reflect an investor’s new goals.

What is a managed portfolio service?

Managed portfolio services are offered by many brokerage firms and allow investors to select a pre-constructed portfolio that has been created by the broker. A portfolio manager oversees the investments and makes the buy and sell decisions for the portfolio’s assets. Portfolio services can typically be tailored to an individual investor’s financial goals and risk tolerance. Brokerage firms typically charge a fee to manage the portfolio.

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