Some basics for your personal portfolio management
This article guides small investors on how to manage their
portfolios in an efficient and effective manner. Portfolio management
is explained as a simple three-step procedure.
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.
