Portfolio management and investment analysis
A portfolio in finance is used to refer to a collection of investment tools such as stocks, shares, mutual funds, bonds, and cash among other things. Portfolio management is the science and art of selecting the apt combination of investible instruments and policies in the right proportion, matching investments to goals, allocating assets for individuals and institutions, to generate optimum returns while stabilizing the investment risk against investment performance.
It involves the development of an investment strategy that meets investor goals. Investment analysis on the other hand is described as a way of assessing an endowment for profitability and opportunity. Its main aim is to estimate how the provided investment is conventional for a portfolio. Portfolio management and investment analysis are all about choosing the appropriate investments in order to satisfy the goals of the portfolio.
They are about reporting investment choices to customers and fitting performance targets with acceptable risks. Active direction needs robust research and evaluation procedures in order to satisfy the demands of investors, particularly in today’s marketplace and economic conditions. Better portfolio management is realized through better comprehension of instructions and better advice to make investment choices.
Types of portfolio management
- Active Portfolio Management. In this kind of portfolio management, the managers are actively involved in the buying and selling of securities. It refers to the active management of the funds of a portfolio by an individual manager or a group of managers on the basis of hard-core research of the investment avenues.
- Market portfolio management. It contains many various securities investments and assets in the world financial market with each asset weighted for its presence in the market.
- Discretionary Portfolio management. This is where the portfolio manager is controlled by the client. The client gives the portfolio manager the authorization to take care of the client’s financial needs and issues the portfolio manager with money. The portfolio manager is allowed to make decisions on behalf of the client. He or she is responsible for all the investment requirements, documents, paperwork, filing, etc.
- Non-Discretionary Portfolio management. This is where the portfolio manager can just suggest to his client what’s right and what’s not, what’s advantageous or disadvantageous for him, but the ultimate decision depends on the client. However, the investor himself is thus responsible for the profit or loss so incurred, while the portfolio manager just gets a commission for rendering his respective service.
- Passive Portfolio Management. The portfolio manager deals with a fixed portfolio matching the market. Zero investment portfolio; attained by buying and selling equivalent investment securities.
Process of portfolio management
Portfolio management involves the following stages;
- Security Analysis. This is the first step for creating a portfolio where the factors of risk and return of individual securities are assessed. It also involves calculating how correlated they are.
- Portfolio Analysis: In this step, an analysis of the prospective investment securities is done and portfolio managers try to figure out how many portfolios can be made. The selected portfolio will be known as a feasible portfolio.
- Portfolio Selection: From the group of feasible portfolios, the one which aligns with the risk appetite of the client is sorted by the portfolio manager. The selected portfolio will be termed as an optimal portfolio.
- Portfolio Revision: After the selection of the optimum portfolios, a close watch is kept on the performance of the portfolio by the fund manager to be sure of decent returns.
- Portfolio Evaluation: This is the final phase of portfolio management where the portfolio’s performance is evaluated for a predetermined time frame, in the context of the returns earned and the risk associated with the portfolio.
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