What is Portfolio Management?

Managing a portfolio is actually a mix of art and science wherein decisions have to be made regarding investments, policies, and matching of investments. It also deals with the set objectives, balancing risk versus performance, as well as the proper asset allocation for institutions and individuals. Although some stock marketers or portfolio managers are well equipped with the knowledge of portfolio management, there are some people who are already very adept at the task despite the lack of formal training.

The key in portfolio management is in knowing about weaknesses, strengths, opportunities, as well as possible threats in the choices being made. It also involves debt against equity, growth versus safety, as well as domestic against international. Learning about portfolio management may also include learning about tradeoffs that may be encountered when attempting to maximize the returns for a certain type of movement. In some cases, the people who do portfolio management are able to use an Online Portfolio Manager or a portfolio rebalancing software.

Apparently there are two forms of portfolio management. One method is passive management, which is the method of simply tracking the market index. This is often referred to as index investing or simply put “indexing.” The other method is called Active management, which is more complex than the first method. Although this is not exactly along the lines of Do It Yourself portfolio management, but it does involve a single manger or a team of managers who will attempt to beat the market returns by managing a portfolio through the investment decisions that are taken from research and individual holdings. Most of the funds that are called “close-ended” are usually the ones that are known to be actively managed.

Whatever the method of portfolio management a person decides to pursue, it is imperative that he or she start from the basic methods such as the passive management before diving into active management.

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