Portfolio management is an integral part of investing. Portfolio management is the process of selecting and maintaining a collection of investments. Creating future financial goals and analyzing past performance metrics are key components of portfolio management. There are many measurements used to analyze the performance of different investment styles and strategies.
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.
The Portfolio Handbook discusses key portfolio management terms such as hedging, diversification, and asset allocation.
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