When an investor decides to invest in stocks or investment funds, they can choose the shares of many listed companies. Those companies usually have different levels of risks and varying levels of returns. Since there are several and various choices of investments, the chances are higher for the investors to succeed if they have a specific strategy to choose between the assets. Regular investors can even have a better chance to adopt a portfolio management strategy to improve their personal finance.

But what is portfolio management? And how can it make an impact for regular investors in their investments? You will find all your answers today in this blog.

So stay tuned with us!

What Is Portfolio Management?

Portfolio management is the science and art of decision-making about investing your money. Portfolio management is all about comprehending weaknesses, strengths, threats, and opportunities while choosing equities. The notion includes strategies and policies for matching investment selection to an individual’s aims, risk tolerance, and asset allocation requirements.

Objectives Of Portfolio Management

When a regular investor builds a portfolio, he should keep the following objectives in mind based on an individual’s expectations:

  • Tax planning
  • Capital growth
  • Liquidity
  • Consistent returns
  • Diversification of risk
  • Marketability of securities invested in
  • Security of principal amount invested

Categories Of Portfolio Management

According to the experts, portfolio management falls into four categories:

1.    Active Portfolio Management

The investor aims to generate better market returns than the market in this portfolio management. The strategy is ‘active’ as it requires a constant market evaluation to buy resources when they are devalued and sell them when they exceed the norm. Active portfolio management call for a high level of expertise in the markets.

The strategy requires a quantitative analysis of the market, broad diversification, and a sound understanding of the business class.

2.    Passive Portfolio Management

Passive portfolio management doesn’t involve the ‘beating the market’ concept because proponents subscribe to the efficient market hypothesis. To put it simply, they believe fundamentals will always be reflected in the underlying asset’s value.

Investors who seek to lessen risk often prefer passive strategies is to invest in an index fund that tracks some other market index.

3.    Discretionary Portfolio Management

A discretionary method to portfolio management gives the investor complete control over the client’s investment judgments. The investor makes all the buy and sell choices on behalf of their clients and consumes whatever strategy they think is the best.

This type of strategy can only be accessible by individuals with extensive knowledge and experience in investments.

4.    Non-Discretionary Portfolio Management 

Non-discretionary portfolio management is the reverse of discretionary portfolio management. In this portfolio management, the investor acts as a broker, follows his clients’ instructions, and acts accordingly.

Benefits Of Portfolio Management For Regular Investors

·         Reducing Risk

This is one of the most critical merits of portfolio management. You can alter the risk you are taking on a substantial percentage of your capital.

There are many kinds of financial instruments available in the market. Fixed deposit and debt funds are the least risky tools with low returns. In contrast, instruments in the equity market are quite risky but can earn good returns.

·         Allocation Of Funds For Maximum Profit

Portfolio management is done with many aspects in mind like anticipated returns, financial goals, risk-taking capacity, etc. If you enthusiastically manage your portfolio, you can maximize your returns on your hard-earned capital.

·         Diversification

Diversification refers to the allocation of funds in various types of financial instruments. It defends against the risk posed by one asset. This is also one great benefit of having a well-balanced portfolio and managing it actively.

In A Nutshell

Portfolio management is a crucial component of investing. Each portfolio management strategy has a unique set of advantages and demerits to be weighed before deciding which approach to pursue and which one not to.

If you want to save your sinking funds and use them in portfolio management, you can contact My EasyFi for finance solutions. We have easy-to-use software that can help you manage your finances.

You can also read: How To Maintain A Monthly Budget Calendar?
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