Portfolio Management

A Brief Guide to Portfolio Management

Portfolio management is the process of selecting different types of investments, such as stocks, funds, and bonds, to achieve specific financial goals. The process involves monitoring your investments and making adjustments over time based on a portfolio management strategy tailored to your needs.

There are a few more aspects to portfolio management besides managing investments. These include asset location, rebalancing, and tax minimization. In practice, portfolio management brings all these services together to provide investment management services that help you achieve your financial goals. A portfolio management strategy can be active or passive.

Active Portfolio Management

With active portfolio management, your portfolio manager takes a hands-on approach to the selection of investments. They charge you a percentage of the total value of assets that they manage on your behalf. Active portfolio management aims to outperform the stock market index or specific investment benchmark.

In some cases, high portfolio management feeds erode investment returns. You may, for example, pay 1% or more of your investment balance annually for advisory fees. As a result, a growing number of clients prefer passive portfolio management services because they're more affordable.

Passive Portfolio Management

Passive portfolio management involves selecting investments that aim to mirror the stock market's performance or a specific section of it. As with traditional portfolio managers, you define the parameter for a robo-advisor, which is a service that relies on algorithms to select and manage investments for you.

In many cases, robo-advisors charge a percentage of the total value of the assets they manage for you. However, this management fee is usually a fraction of a percentage point (typically 0.25%–0.50%) because passive portfolio management doesn't require hands-on management of your investments.

If you're interested in additional assistance, such as advice on financial planning, please give us a call. In addition to automated portfolio management, we offer the investment advice you may receive from a conventional financing planning firm.

The advisors offer guidance on investing, saving, spending, and safeguarding your money. However, unlike traditional financial planners with whom you'd talk to in person, these services provide financing planning advice over video or the phone.

Portfolio Management vs. Wealth Management

At their cores, portfolio management and wealth management are similar concepts, but they're different in practice. On the one hand, portfolio management refers strictly to the management of a client's investment portfolio.

On the other hand, wealth management is the epitome of financial planning. Besides investment management, it includes services such as legal guidance, tax preparation, estate planning, and more.

What Does a Portfolio Manager Do?

A portfolio manager develops an investment strategy for you based on various factors, including your investment goals and risk tolerance. They also monitor your portfolio on an ongoing basis and makes the appropriate adjustments.

If you prefer to manage your investments yourself, a portfolio manager may not be necessary. However, hiring a professional portfolio manager is essential if you prefer a hands-off approach to your investment.

What Informs a Portfolio Management Strategy?

Four main factors determine your portfolio management strategy.

  • Your Financial Goals. The amount of money you need to save and the investment strategy you need to follow depend on your saving objectives, such as retirement, your child's education, a home renovation, or a vacation.
  • Your Preferred Degree of Control. Some investors prefer to let their portfolio manager choose all the investments. Others would rather exercise complete control over all their investments. If you're undecided about which option to take, consider using robo-advisor services.
  • Your Timeline. You can choose a short-term, intermediate, or long-term timeline for your financial goals. This choice determines how conservative or aggressive your investment strategy should be.
  • Your Risk Tolerance. The mix of assets and level of diversification of your investment portfolio hinges on the level of risk you're willing to accept. Higher risk confers higher potential returns over the long run but may also cause short-term volatility.

Get the Help You Need To Reach Your Financial Goals

Hiring the right portfolio management services for you is one of the most effective ways of achieving your financial goals. Contact Davis Wealth Services today and find out more about investment portfolio management.