Investment portfolio management is the process by which individuals choose which assets to buy and sell to make up their portfolios, which are made up of all of their financial assets. This process may be undertaken alone but more commonly is done with the help of experienced investment professionals. Individual investors direct their portfolio management team to build capital according to their financial goals and needs. In addition, portfolio management is directly concerned with the minimization of the risk involved with all investments.
Most investors attempt to build a portfolio of investments that will help them achieve their current and ultimate financial goals. Whether these goals include long-term stability, rapid growth, or money for retirement, they can be achieved through savvy investing techniques that have been perfected by investment professionals. While there is no way to eliminate risk from investment, employing excellent investment portfolio management is an effective way to remove a large portion of that risk.
One strategy used by professional investment portfolio management services is diversification. When diversifying a portfolio, managers try to choose assets that represent a wide swath of investment strategies. By doing this, it exposes the investor to different growth possibilities and also lessens the risk of a small sampling of securities doing damage to a portfolio as a whole. For example, an investor can choose between traded securities like stocks and bonds, but he also may wish to branch out into areas like real estate or commodities to really expand his investment horizons.
The essential quality of investment portfolio management is adaptability. In other words, the portfolio manager must be able to alter his investment strategy depending upon the needs of a client, which can change regularly. For example, an investor may have a relatively safe portfolio comprised of low-risk securities like government bonds. On the other hand, sometimes a life event may require a sudden infusion of funds, at which point the manager may have to shift gears to more aggressive and risky strategies like derivatives trading.
Along with catering investment portfolio management to the individual investor's current and future needs, a manager must also be aware of how much acceptable risk the investor is willing to incur. Some investors are willing to take on the risks that come with potentially high rewards while others want their capital to be protected from risk as much as possible. Portfolio management entails great communication between investor and manager, so that no amount of the investor's capital is put at risk without the investor being on board with the decision.
