Some basics for your personal portfolio management
A portfolio is made of all the investment and securities held by an investor. Big investors often hire professionals to manage their portfolios, but for small investors this can be a little bit costly. However, you do not need to loose heart. After reading the step-by-step procedure described in this article, you will be able to manage it yourself. Portfolio management can be divided into three phases.
• Planning
• Implementing
• Controlling
Planning:
As you do in any other business planning, start with determining your investment objectives and goals. Doing this will give you a clear set of requirements and make it easier for you to choose one investment over others. Investment objectives are not limited to deciding how much profit would you like to make? But you should also consider the time and liquidity factors. Also the amount of risk you are ready to undertake. Take all possible scenarios like inflation or some change in laws into consideration. Although you will try your best to pick the most reasonable securities for your portfolio, you need to remember that the realized returns will actually be quite different from the expected risks and returns. So all of your portfolio planning and security selection process should take into account this uncertainty.
Implementing:
After making a decision, based on your investment objectives, expected risk & return, time frame and other factors, the next step is to decide and go for the selected securities. When implementing your investment strategy, you should follow the rule of diversification. A good portfolio needs diversification to counter that “unknown” factor. This diversification can be achieved in local markets or more effectively by exploring global markets. The effectiveness of some portfolio can be judged at any given time by comparing its peak level of expected return to some specific amount of risk.
Controlling:
When you are managing your portfolio, you need to keep a constant check on its performance and market conditions. In most cases you will need to make some changes continuously. All of this can be a challenging task and there is every possibility of some initial decisional errors and failures, but as your experience grow with the passage of time, you will soon find yourself managing all of these departments with ease. Managing your portfolio will not only save some expenses, but it will also bring that independence of controlling the destiny of your investments, yourself.
• Planning
• Implementing
• Controlling
Planning:
As you do in any other business planning, start with determining your investment objectives and goals. Doing this will give you a clear set of requirements and make it easier for you to choose one investment over others. Investment objectives are not limited to deciding how much profit would you like to make? But you should also consider the time and liquidity factors. Also the amount of risk you are ready to undertake. Take all possible scenarios like inflation or some change in laws into consideration. Although you will try your best to pick the most reasonable securities for your portfolio, you need to remember that the realized returns will actually be quite different from the expected risks and returns. So all of your portfolio planning and security selection process should take into account this uncertainty.
Implementing:
After making a decision, based on your investment objectives, expected risk & return, time frame and other factors, the next step is to decide and go for the selected securities. When implementing your investment strategy, you should follow the rule of diversification. A good portfolio needs diversification to counter that “unknown” factor. This diversification can be achieved in local markets or more effectively by exploring global markets. The effectiveness of some portfolio can be judged at any given time by comparing its peak level of expected return to some specific amount of risk.
Controlling:
When you are managing your portfolio, you need to keep a constant check on its performance and market conditions. In most cases you will need to make some changes continuously. All of this can be a challenging task and there is every possibility of some initial decisional errors and failures, but as your experience grow with the passage of time, you will soon find yourself managing all of these departments with ease. Managing your portfolio will not only save some expenses, but it will also bring that independence of controlling the destiny of your investments, yourself.
posted by William King @ 9:19 PM
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