Portfolio management involves not only analysing individual stocks, but also considering factors such as asset allocation, diversification, and risk management. It also involves regularly monitoring and adjusting the portfolio to meet the investor’s goals and objectives. Stock analysis is just one aspect of portfolio management.
Today, we will examine the aspects of portfolio management and what to keep in mind when constructing your portfolio. Shall we begin?

Meaning of Portfolio Management

Portfolio management is the process of making investment decisions and managing assets in a portfolio. This includes selecting the mix of investments, monitoring performance, and making adjustments as necessary in order to meet the financial goals of the portfolio’s owner. Portfolio management can be done by an individual or by a professional investment manager. The goal of portfolio management is to maximise returns while minimising risk.

Why is portfolio management important?

Portfolio management is important because it allows individuals and organisations to efficiently manage and invest their assets in a way that is tailored to their specific financial goals and risk tolerance. Through careful selection and management of a diversified mix of investments, portfolio management can help to minimise risk and maximise returns. By regularly monitoring and adjusting the portfolio, investors are able to stay abreast of market changes and make informed decisions about their investments. Additionally, professional portfolio management can provide access to valuable resources and expertise that may not be available to individual investors. Overall, portfolio management is a crucial component of effective wealth management and financial planning.

Key Elements of Portfolio Management

Three main elements of portfolio management are:

Asset Allocation: Asset allocation is a key aspect of portfolio management that helps determine what types of investments to make and in what proportion. It is based on factors such as an individual’s age, financial goals, risk tolerance, and time horizon. For example, a younger investor may prefer to invest more heavily in equities, while an older investor nearing retirement may allocate a greater portion of their portfolio to fixed income instruments. Similarly, someone with expertise in real estate may choose to invest in commercial properties before investing in equities or bonds. In summary, asset allocation is a dynamic process that considers an individual’s unique circumstances and goals in order to determine the most appropriate mix of investments.

Diversification: Diversification helps to reduce risk by spreading investments across different assets and industries. By diversifying a portfolio, an investor can reduce the impact of any one individual investment on the overall performance of the portfolio. This can help to protect against volatility in any one market or sector, and can also help to smooth out overall returns over time. Additionally, diversifying a portfolio can also help to increase returns by allowing an investor to take advantage of different opportunities in different markets and sectors.

Portfolio Rebalancing: Portfolio rebalancing is another key element of portfolio management. It is the process of regularly adjusting the allocation of assets in a portfolio to maintain a desired level of risk and return. By periodically buying and selling assets, a portfolio can be realigned with an investor’s risk tolerance and investment goals. Rebalancing can help to keep a portfolio from becoming too heavily weighted in a particular asset or sector, which can lead to increased risk. It also helps to capture gains in an asset class that has performed well and to reduce exposure in an asset class that has underperformed. Additionally, regular rebalancing can also help to reduce the impact of emotions on investment decisions, as it forces an investor to buy low and sell high.

Types of Portfolio Management

There are four main types of portfolio management:

  1. Active management: Active portfolio management involves making specific investment decisions, such as selecting individual stocks or bonds, based on an investor’s research and analysis. Active managers aim to beat the market by using their expertise, market insights, and research to generate higher returns than a benchmark index.
  2. Passive management: Passive portfolio management, on the other hand, involves tracking a market index, such as the S&P 500, by buying the same securities in the same proportions as the index. Passive managers do not try to beat the market, but rather aim to match its performance by keeping their portfolio closely aligned with the benchmark index.
  3. Discretionary management: Discretionary portfolio management services refer to a type of professional investment management service where the portfolio manager has discretion to make investment decisions on behalf of the client. Under this type of service, the portfolio manager has full authority to make trades and manage the portfolio, without the need for prior approval from the client.
  4. Non-discretionary management: Non-discretionary portfolio management services, also known as advisory portfolio management services, are a type of professional investment management service where the portfolio manager makes investment recommendations to the client, but the final decision of whether to execute the trade or not, is made by the client.


To sum up, managing a portfolio, which is a key aspect of financial planning, can vary greatly depending on various factors such as age, goals, and risk tolerance. It requires a thorough understanding of these factors and a significant amount of financial and industry knowledge. Due to the complexity of this task, it can be challenging for many individuals. However, if you are able to master it, that’s great. If not, don’t worry, there are professionals who can help you. Thanks for reading!

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