The process of creating and managing an investment portfolio is known as portfolio management. You have the option of managing your own portfolio or hiring a portfolio manager or financial advisor. The prospect of managing your own assets might be intimidating, but regardless of your financial situation, there is a degree of portfolio management that is appropriate for you.

If you’re just getting started, you may look at index funds or even automated portfolios if you don’t want to manage your own. If your financial situation is more complicated, you may benefit from the services of a financial adviser or wealth advisor like Omura Wealth Advisers.

What exactly is a portfolio?

A portfolio is an individual’s or organization’s whole collection of financial assets, portfolio management of stocks, bonds, mutual funds, real estate, cryptocurrencies, art, and other collectibles are examples. It refers to all of your investments, which may or may not be held in a single account.

Portfolio Management

Portfolio management is a well-planned investment strategy based on your objectives, time frame, and risk tolerance. Portfolio management includes selecting and monitoring investments such as stocks, bonds, and mutual funds over time. Portfolio management can be done on your own, with the assistance of a professional, or via an automated solution.

What Exactly Is Portfolio Management?

Portfolio management: active vs. passive

Active and passive portfolio management are the two basic portfolio management methodologies.

Active portfolio management: When making investing decisions, active portfolio managers adopt a hands-on approach. They charge a portion of the funds they manage on your behalf. Their purpose is to outperform a predetermined investment benchmark (or stock market index). However, expensive portfolio management fees reduce investment returns – customers spend 1% of their balance or more each year to cover advisory fees, which is why more cheap passive portfolio management services have grown popular.

Passive portfolio management is selecting a collection of investments that closely mirrors a wide stock market index. The goal is to replicate the market’s (or a subset of its) returns over time.

A robo-advisor, and some traditional portfolio managers, allows you to set your parameters. A robo-advisor is a service that uses a computer algorithm to choose and manage your investments for you based on your goals, time-frame, and risk tolerance. Robo-advisors often charge a percentage of assets handled, but because there is little need for active hands-on investment management, the cost of management fees is a fraction of a percent, generally between 0.25% and 0.50%.

Consider employing a firm like Omura Wealth Advisers for more complete assistance on investment portfolio management as well as financial planning counselling. These services combine low-cost, automated portfolio management with traditional financial counselling — our experts give guidance on spending, saving, investing, and safeguarding your funds. The key distinction is that sessions with your financial adviser can be conducted over the phone or via video rather than in person.

Considerations for portfolio management

Portfolio management is more than just putting together and maintaining an investment portfolio. Here are some ideas to help you pick and manage your assets sensibly.

Asset location: One aspect of selecting an investment portfolio is deciding between taxable and tax-advantaged accounts. This action may have both immediate and long-term tax consequences. You should use designated retirement accounts such as IRAs and 401(k)s for your retirement savings because they provide tax advantages—for example, money contributed to a Roth IRA grows tax-free. Find out more about Roth IRAs and their tax advantages from our experts. You should also have a normal taxable investing account for non-retirement purposes, such as saving for a down payment.

Asset allocation is similar to asset location in appearance, but it relates to how your portfolio is divided up across various sorts of assets. This is frequently tied to your risk tolerance level. For example, if you have a long time until retirement, you have more time to take risks and, as a result, you may invest a larger portion of your portfolio in riskier investments. If you’re nearing retirement, you might want to shift your asset allocation to include a higher share of less risky investments.

Diversification: diversification is the practise of distributing your investment funds among various firms, locations, sizes, and sectors. As a result, if one industry fails, your entire portfolio does not. Investing in funds, which are basically bundles of many assets, provides greater diversification than investing in a single company.

What Exactly Is Portfolio Management?

Rebalancing: Rebalancing is how portfolio managers keep their accounts in balance. Portfolio managers do this to stay faithful to the investment strategy’s target allocation, or what percentage of the portfolio is in riskier investments versus less risky ones. Market volatility may lead a portfolio to deviate from its initial objectives over time. Learn how to rebalance your portfolio from our financial experts.

Tax minimisation is the process of determining how to pay less in taxes overall. These techniques seek to balance or reduce an investor’s present and future tax exposure, which can make or break an investor’s profits. To prevent costly IRS surprises, it is critical to consider tax-efficient investments.

Putting Everything Together

In the current world, portfolio management incorporates all of these elements into a single individualised portfolio. Assume an investor plans to retire in five years and does not want to take on too much risk. They have a superannuation plan through their workplace (their asset location) into which they contribute a percentage of their earnings. Their asset allocation might be split 50/50 between equities and bonds. If this ratio shifts over time and the investor ends up with a portfolio that is closer to 55% stocks, they are taking on more risk than they are comfortable with. The portfolio would then be rebalanced by the portfolio manager to return to its original 50/50 ratio.

Tax reduction and asset placement can go hand in hand. For example, if you opt to keep your assets in a Roth IRA, you are automatically lowering your tax burden because qualifying Roth distributions are tax-free in retirement.

How to Handle Your Personal Portfolio

Investment portfolio management selections are influenced by four major factors: an investor’s goals, the timescale, the amount of assistance desired, and risk tolerance.

  1. Setting goals: Your savings goals can be – retirement, a home remodel, a child’s education, or a family trip, which dictate how much money you need to save and what investing strategy and account type is best for you.
  2. Creating a timeline: When do you need the money you’re investing for, and is that date fixed or flexible? Your timescale influences how aggressive or conservative your investing plan should be. Most investing objectives may be mapped to short, intermediate, or long-term time horizons, which are roughly defined as three years, three to ten years, and ten years or more. If you need the money in three years, for example, you’ll want to limit your exposure to the stock market’s short-term volatility.
  3. Determining how much assistance you require: Some investors prefer to select all of their assets themselves, while others prefer to delegate this task to a portfolio manager. If you can’t decide, a robo-advisor might be a good option because these services are quite inexpensive. Portfolio managers often charge more than robo-advisors, but they typically provide a tailored portfolio as well as additional services outside of portfolio management, such as financial planning.
  4. Determining your risk tolerance: Another important factor in diversification selections is an investor’s willingness to take risk. The larger the potential payout, the more risk you’re ready to accept—high-risk investments tend to produce better returns over time, but may see more short-term volatility. The idea is to establish the correct risk-reward balance, selecting assets that will help you reach your objectives while not keeping you awake at night.

Wealth management vs. portfolio management

Portfolio management is only concerned with a client’s investment portfolio and how to effectively allocate assets in accordance with their risk tolerance and financial objectives. In addition to investment management, wealth management is the highest degree of financial planning and frequently includes services such as estate planning, tax preparation, and legal advice.