How To Manage Investment Portfolio


Take Advantage Of Drip

How to build Investment Portfolio – Portfolio Management & Investment Analysis | Stock Portfolio

Another way to automate your investments is to set up DRIP, which stands for dividend reinvestment plan. Put simply, when you receive dividends, you can get them in the form of cash or use that money to purchase more shares of the same asset. Once set up, this is done for you automatically and typically involves no or very low commission fees. Using dividends to build up your portfolio will increase your wealth even faster.

Match Time Horizon With Your Investment Choices

Examine your time horizon for meeting your goals, and consider how comfortable you may be riding out short-term losses in the value of your investments. Remember, the longer your time horizon, the more volatility you can tolerate in your portfolio. At the same time, long-term investors need to be concerned about inflation. If you are investing your retirement funds, you may also be concerned about building capital over the long term.

For example, investors pursuing long-term goals will be most concerned with long-term growth and managing inflation risk. Their portfolios will likely be more heavily weighted in stock investments, as these have historically provided the highest long-term returns and outpaced inflation by the widest margin, although past performance does not guarantee future returns. These investors may also devote some money to bonds and money market investments to help manage the higher risks associated with stocks. Keep in mind that stocks offer long-term growth potential but will fluctuate and may provide less current income than other investments.

On the other hand, people already in retirement may need to rely heavily on the income from their portfolios. Therefore, they may seek to manage income and manage risk of short-term losses. Their portfolios will likely be weighted in high-quality, lower-risk bond and money market investments, with some stocks in the mix to maintain growth potential.

Portfolio Rebalancing By Age/goals

Portfolio rebalancing in and of itself isnt really a function of how old you are or what youre trying to achieve with your portfolio. But since choosing an asset allocation is the precursor to portfolio rebalancing, lets talk about how you might allocate your portfolio at different key times in your life.

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What Is An Investment

An investment is something you buy in the hopes that it will increase in value over time. There are many common types of investment vehicles, such as stocks, bonds and mutual funds. Investors usually buy these investments and hold onto them for a long time, benefiting if their value goes up. Of course, investors can also lose money if their investments value goes down. Some investments have less risk of losing value than others .

Other things can be investments too. Many people think of their home as an investment, though not everyone makes money on a home sale like other investments, homes can also lose value. Large purchases that depreciate in value over time, such as vehicles, are generally not considered investments.

Putting It All Together

Portfolio Management

Portfolio management in the real world combines all of these aspects into one personalized portfolio. Say an investor is planning on retiring in five years and doesnt want to take much risk. They have a 401 from their employer where they put a portion of their paycheck. Their asset allocation could be 50% stocks and 50% bonds. If this ratio changes over time, and the investor winds up with a portfolio closer to 55% in stocks, that gives them a riskier portfolio than they are comfortable with. The investor or a portfolio manager would then rebalance the portfolio to bring it back to its original 50/50 ratio.

Tax minimization can go hand and hand with asset location. For example, if you choose to locate your assets in a Roth IRA, you are inherently minimizing your taxes since qualified Roth distributions are tax-free in retirement.

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Outline Your Goals And Risk Tolerance

Everyone has lifestyle goals, but not everyone can articulate them. Write down your goals including funding details in todays dollars in 3 buckets: short-term , mid-term , and long-term .

The goal is to align your investment mix with your investment risk comfort level.

Consider keeping funds for any short-term goals in cash to avoid the fluctuations in the stock market. Mid and long term goals can be bucketed and invested according to your overall risk tolerance. Most of us are long-term investors. Even when you retire, youll still have 20, 30 years or more to keep investing in the stock market.

Special note on risk tolerance: many new investors are tempted to purchase single stocks. Holding only the stock of a handful of companies is quite risky, particularly when the decision to do so is based on the buyers preference for a company, product, or service and not necessarily on current market conditions or in-depth research on the firms financials.

Individual stocks inherently carry a much higher risk than a diversified broad-based fund or ETF. Unless the account is simply a play account where the funds are not ultimately needed, investment risk management should be a critical component to your asset allocation strategy.

Portfolio Management: Key Takeaways

  • Portfolio management can range in price: Some services are completely free while others charge 1% of your assets under management or more.

  • There are two main portfolio management strategies: active management and passive management.

  • Portfolio management involves concepts such as asset location, diversification, rebalancing and tax minimization.

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What Does A Portfolio Manager Do The Six

So exactly how do portfolio managers go about achieving their clients financial goals? In most cases, portfolio managers conduct the following six steps to add value:

#1 Determine the Clients Objective

Individual clients typically have smaller investments with shorter, more specific time horizons. In comparison, institutional clients invest larger amounts and typically have longer investment horizons. For this step, managers communicate with each client to determine their respective desired return and risk appetite or tolerance.

#2 Choose the Optimal Asset Classes

Managers then determine the most suitable asset classes based on the clients investment goals.

#3 Conduct Strategic Asset Allocation

Strategic Asset Allocation is the process of setting weights for each asset class for example, 60% equities, 40% bonds in the clients portfolio at the beginning of investment periods, so that the portfolios risk and return trade-off is compatible with the clients desire. Portfolios require periodic rebalancing, as asset weights may deviate significantly from the original allocations over the investment horizon due to unexpected returns from various assets.

#4 Conduct Tactical Asset Allocation or Insured Asset Allocation

#5 Manage Risk

#6 Measure Performance

The Treynor ratio, calculated as Tp = /, measures the amount of excess return gained by taking on an additional unit of systematic risk.

Making Your Principal Last

How do I manage my money? – My investment portfolio & savings.

Making your money last as long as you need it requires a disciplined approach to spending. Experts advise that you don’t overspend your first few years of retirement. They also suggest that you be prepared to cut back on extras if your retirement portfolio suffers losses in a given year. The other key to stretching your retirement income is sound management of the yearly withdrawals you make from your retirement portfolio principal.

While there is no “one size fits all” percentage for how much of your nest egg you should withdraw each year, expert opinion tends to cluster in the 3 to 5 percent range. One thing most retirement planning specialists agree on is that you should start withdrawing as conservatively as possible at the beginning of your retirement. One of the arguments for starting off conservatively is that even a well-diversified investment portfolio can fluctuatesometimes significantlyfrom year to year. You want to give your portfolio a chance to recover in the event the market takes a nosedive.

It’s also a prudent strategy to take inflation into account as you withdraw. Consider building in an inflation rate to your yearly withdrawals. You should note that rising expenses and declining investment returns can take a toll on how long your money will last. Keep an eye on both, and be prepared to adjust your withdrawal rate, if necessary.

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Cost Is The Biggest Drawback

The industry average cost is about 1.0% of assets managed per year. So, if your portfolio totals $50,000, youll pay your advisor roughly $500 per year. In addition, youll pay any commissions and fees associated with the investments in your portfolio. Paying any fees, including an investment advisors fees, will reduce your overall returns.

Some advisory services try to beat the industry average. Vanguard claims that on a $250,000 investment using the companys Personal Advisor Services, which only costs 0.3% of assets under management per year, you would spend $187.50 in quarterly fees compared to an industry average of $625.

Inappropriate Investments: The Unseen Risks

When thinking about how to balance risk and return in your portfolio, don’t forget that the risk of loss is not the only kind of risk. Give some thought to the risk of investing too conservatively and not reaping a high enough return potential to provide for your financial future. Also be aware of investing in instruments that may be too risky for your shorter-term goals. A financial professional can help you select investment vehicles that are suitable for your goals.

As you consider each particular investment, research its performance history and risk characteristics. For example, if it’s a stock fund, how drastically has it responded to drops in the market? How long has it taken to recoup losses? How has it performed over a time frame similar to your own? For a bond fund, consider also the average maturity of bonds held in the particular fund.

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Changing Your Asset Allocation

The most common reason for changing your asset allocation is a change in your time horizon. In other words, as you get closer to your investment goal, youll likely need to change your asset allocation. For example, most people investing for retirement hold less stock and more bonds and cash equivalents as they get closer to retirement age. You may also need to change your asset allocation if there is a change in your risk tolerance, financial situation, or the financial goal itself.

But savvy investors typically do not change their asset allocation based on the relative performance of asset categories – for example, increasing the proportion of stocks in ones portfolio when the stock market is hot. Instead, thats when they rebalance their portfolios.

How To Make Your Investment Portfolio

Discretionary Portfolio Management

An investment portfolio is a collection of financial products such as Fixed deposits, PPF, EPF, NPS, Gold, Property, stocks, mutual funds, exchange-traded funds, Cryptocurrency and International markets. It is like making your own Cricket Team from all the available options. It is like making your thali in a buffet or a marriage party but instead of choosing starters, desserts one is choosing the investment option. You can be a DIY, or hand off your portfolio to financial advisors or Robo advisors but at any stage, you should be in control, in the driving seat as it is your money. There is no one size fits all approach in Food, Cricket and Investing. You must invest as per your goals, requirements. This article talks about how to make your Investment Portfolio? Gives an overview of all the investment options, How much in Equity, How much in Debt? How to make a Debt Portfolio? How much in stocks, How much in Equity Mutual Fund

The most fundamental decision of investing is the allocation of your assets: How much should you own in stocks? How much should you own in bonds? How much should you own in cash reserve?

Jack Bogle, the founder of Vanguard

An investors biggest strength is his portfolio. To be able to diversify the portfolio will help an in cutting his losses and maximize his returns.

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How Much In Equity How Much In Debt

The first step in deciding how much would go in equity and how much in debt?

The General Thumb rule of investing in Equities is 100-your age.

So a person of age 30 should have 70% in equities while of age 60 years should have 30% in equity. But that is just a thumb rule. A person in their 40s can take more risk if he has saved and invested enough than a person in his 20s how has just started earning and has responsibilities.

The allocation to equity depends on three factors: when you need the money, your capability for risk, and the volatility you can bear.

The main aim of investing in debt is to preserve your money and not returns and stability to the overall portfolio.

Beginners Tip: If you are not sure you can start with 50% in equities & 50% in fixed income.

Types Of Portfolio Risks

There are lots of types of investment risks, both at the portfolio level and the individual security level. Firstly, the following are examples of risks that are specific to individual securities. These risks can easily be managed through diversification:

  • Liquidity risk
  • Regulatory risk and political risk
  • Duration risk
  • Style risk

Broader portfolio risks can affect the entire portfolio. Managing these risks requires more creative diversification and other strategies. The following are the main portfolio level risks.

The greatest risk facing any portfolio is . This is also known as systematic risk. Most assets correlate to some extent. The result is that a stock market crash will result in most stocks falling. In fact, most financial assets will lose value during a bear market.

At the other end of the risk spectrum is inflation risk. This is the risk that a portfolios buying power will not keep up with inflation. Thus, the reason a portfolio needs to include risky assetsand risk needs to be managed. Over the long term, owning risky assets allows you to outperform inflation.

Reinvestment risk can affect the entire bond portion of a portfolio. If bonds are purchased when yields are high, the holder earns those high yields even if interest rates fall. However, if yields are low when the bond matures, the principal cannot be reinvested at a high yield.

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It’s Easier Than You Think

If you’ve ever watched a movie showing traders on Wall Street, you might have gotten the idea that investing involves a lot of chaos and activity.

Happily, it doesn’t have to be that way. In fact, if you started with a solid investment plan, you’ll be able to spend most of your time paying attention to your daily life, not your portfolio.

Not only will this result in less stress for you, it can also give you greater rewards.

Types Of Mutual Funds

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A mutual fund is a professionally managed financial instrument that pools money from many investors to purchase securities such as stocks, bonds, money market instruments, etc. It offers diversification and the opportunity for investors to do smart investments without being actively engaged in the day to day investment activities.

The image below shows the types of mutual Funds.

The funds that invest in the stocks are classified as Equity Funds. They are differentiated based on Market Capitalization, Sector, Tax Saving funds.

Types of Mutual Funds

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Equity Mutual Funds According To Market Capitalization

For example, if a company has 15,000,000 shares and a share price of Rs 20 per share then the Market Capitalization will be 15,000,000 x Rs. 20 =Rs. 300,000,000.

It is a measure by which we can classify a companys size. It is the current market value of the companys outstanding shares.

Before Oct 2017, each Mutual Fund used to have its own definition of large-cap, mid-cap etc. So SEBI, the regulator of Mutual Funds, came up with a standard definition of large-cap, mid-cap etc. Excerpt from the SEBI circular on the definition of large-cap, mid-cap etc is given below.

SEBI Circular on definition of large cap, mid cap based on market

How Much To Invest In Stocks And How Much In Mutual Funds

If you have trouble imagining a 20% loss in the stock markets, you shouldnt be in stocks, John Bogle, the father of index funds

90% of traders lose 90% of their money in 90 days

Investing or Trading: Are you Investing in the stock market for the short term or long Term?

But here lets talk about investing for the long term, at least 3 years.

When you buy stock of a company, you become one of its owners. If the company does well, you may receive part of its profits as dividends and see the price of your stock increase and are entitled to various benefits, like attending the shareholders meeting, voting right, etc. But if the stock price falls, the value of your investment can drop, sometimes substantially. At any given time, stockss value depends on whether its shareholders want to hold it or sell it, and on what other investors are willing to pay for it.

To invest in the stock market, the investor needs to analyze and choose the equity shares to invest in. This is easier said than done. Choosing a good equity share requires a broad understanding of the economy, sectors, and the company itself. One has to go through the financials of the company like balance sheet, profit, and loss account as well as all other parameters that indicate the health of the enterprise. It is said that as individual investors, most people do not have the time, capability, or inclination to do.

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Investment Management: How To Do It

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The investing information provided on this page is for educational purposes only. NerdWallet does not offer advisory or brokerage services, nor does it recommend or advise investors to buy or sell particular stocks or securities.

Hiring someone to manage your investment portfolio may sound like a service only the wealthy need or can afford. But investment management is about making the most of your money: No matter how much you have in your portfolio, its important to ensure every dollar is optimized. An investment manager can help you do that.


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