‘Don’t put all your eggs in one basket’, they say. This saying rings truer as far as portfolio management
goes. If you have invested all of your money in only high risk ventures – stop in your tracks right now! You need to
diversify and spread out your assets and investments across low, medium and high risk ventures. That is what effective portfolio
management is all about. It’s all about making the most of what you have and maximizing your profit potential.
The Passive and active strategies
We talked about diversification earlier. What we meant was how your investments in portfolio management are spread
out across diverse investment options. There are two approaches here:
- Passive: This basically
involves spreading out your investments and assets across a wide range of options. This portfolio management strategy assumes
that the market conditions will automatically reflect security prices. The idea here is to use diversification to achieve
your portfolio management goals (Greekshares.com, nd [online]).
- Active: This portfolio
management strategy is far more research oriented. It takes into account all market information and predictions to plan out
your portfolio. In other words, it listens to what experts have to say about market conditions and then plans out your portfolio
management process (Greekshares.com, nd [online]).
Which kind are you?
Did you know patient, aggressive and conservative aren’t just normal adjectives? They are used to describe your
portfolio management style as well! Here’s what each one means:
- Patient: This type
of portfolio management patiently waits it out for the returns to come. For this, usually such investors put their money into
stocks of well known organizations. They are also prepared to hold on to stocks for long periods till they fetch good money.
Such persons’ portfolio management style is more solid and sure (Greekshares.com, nd [online]).
- Aggressive: These
are the true go-getters because they invest in the big risk and return ventures. Such persons are not concerned with risks.
Their portfolio management involves being prepared for risks and going all out in investing. They’ll also usually invest
large sums in lucrative options. Their portfolio management motto is ‘play big, earn big’(Greekshares.com, nd
- Conservative: These
portfolio management types have a hawk’s eye on their investments. They will never invest in options which carry high
risk. They prefer options which have a past history of providing a good dividend and good annual earnings (Greekshares.com,
When it comes to diversification, the ultimate goal for you is to get the maximum profits, right? How does this happen?
This occurs through effective allocation of assets in portfolio management. There are 4 main classes of assets such as:
- Bonds: which are
like secured loans in portfolio management where you receive the principal and interest amount on maturity (when the period
ends) (Wikipedia, nd [online]).
- Stocks: this refers
to capital in portfolio management raised by the issuance of shares of a company (Wikipedia, nd [online]).
- Real estate: this
involves all properties, land and buildings owned by you (Wikipedia, nd [online]).
- Commodities: which
include agro based products like in portfolio management such as crude oil, iron ore, sugar, soyabeans, aluminum, gold, silver
etc. (Wikipedia, nd [online]).
The goal of your portfolio management company is to maximize your assets in such a way that by investing in them you
exceed benchmarks established by other portfolio management companies. If you are looking at long term investing, then remember
that equities yield much higher returns as opposed to bonds in portfolio management. Bonds in turn, yield more than cash as
far as returns in portfolio management go (Wikipedia, nd [online]).
Coming back to our saying – don’t put all your eggs in one basket, by eggs we mean your funds and by basket
we mean assets. It is never a good idea in portfolio management to place all your funds in one asset class. You need to discuss
with your portfolio management agent and see how much risk you can undertake before you diversify funds (Wikipedia, nd [online]).
Wikipedia (nd) ‘Bond (Finance)’, Available from http://en.wikipedia.org/wiki/Bond_%28finance%29
Wikipedia (nd) ‘Stock’, Available from http://en.wikipedia.org/wiki/Stock
Wikipedia (nd) ‘Real Estate’, Available from http://en.wikipedia.org/wiki/Real-estate
Wikipedia (nd) ‘Commodity’, Available from http://en.wikipedia.org/wiki/Commodities
Wikipedia (nd) ‘Investment managers and portfolio structures’, Available from http://en.wikipedia.org/wiki/Investment_ management#Investment_
Wikipedia (nd) ‘Diversification (finance)’, Available from http://en.wikipedia.org/wiki/Diversification_%28finance%29
Greekshares.com (nd) ‘Investment Portfolio Management and Portfolio Theory’, Available from http://www.greekshares.com/index-6.php