A personal portfolio management comprises of the management of all the investments and securities held by an investor. The procedure of managing all the securities and assets is very complicated and thus, many big investors take the services of portfolio managers that assist in managing their portfolios. The personal portfolio managers utilize their skills and market knowledge and take help of portfolio management softwares for managing the investor’s portfolio.
Important concepts that are of primary importance in personal portfolio management are as mentioned below.
· How risk is measured
· Risk associated with different investments
· Understanding your ‘risk tolerance’
· Relationship between risk and return
· Accounting for fees in portfolio planning
· Correlations in returns between assets
· Portfolio diversification
· Valuation of options
In order to invest for the future income, there are four levels of planning that should be considered by the investors
· Savings rate
· Tax efficiency
· Broad asset allocation across various sectors, cash, real estate, funds, bonds, etc
· Allocation by specific portfolio choices
Broadly, the personal portfolio management can be categorised into three phases including o Planning, Implementing and Controlling.
As the name suggests, this phase involves planning like any other business planning where investor has to determine his/her investment objectives and goals. It helps the investors in providing a clear vision of his goals and set of requirements. The planning also helps the investors in selecting efficient portfolio investment over others.
The determination of the investment objectives is not restricted to deciding the amount of profit one would like to make after investments. Investor should also consider about various other factors such as time and liquidity factors. Investor should also consider the amount of risk he/she can bear.
There are various possible scenarios like inflation, market economy or changes in law; that should be taken into consideration during the planning phase. Investor should realize that the returns obtained may differ from the expected risks and returns therefore all the factors that can lead to uncertainty should be taken into account.
Once a decision is made on the basis of expected risk & return, time frame, investment objectives and other factors, other step involves the implementation of selected strategy. Investors should go for the selected securities and follows the diversification rule while implementing the investment strategy. The diversification of the securities and investment in securities helps in minimizing the losses and reduces the risk in times of financial crisis. To achieve diversification, investors can either select local market or select even the global markets.
Investor should keep a constant check on the market to analysis and evaluating the performance of portfolio in changing conditions of the dynamic market. As an investor you should make constant modifications in your portfolio by selling overweight securities and purchasing underweight securities. It is a challenging task to make all the decisions based on the market fluctuations. With the passage of time, investor’s experience can grow and he/she can learn managing the personal portfolio with ease.