What Is Portfolio Management?

Portfolio management refers to the adjustment of investors' financial assets to reduce risk and improve returns. It involves the use of trading strategies to make appropriate investment decisions.

Where have you heard about portfolio management?

If you have a portfolio, you probably already understand the importance of portfolio management.

BNP Paribas has recently attracted media attention for cutting 3 billion euros of risk-weighted assets from its loan portfolio. That led to the French bank being named 'Portfolio Manager of the Year"

Information you need to know about portfolio management...

To effectively manage a portfolio, the following five main areas should be considered.

Risk Tolerance-Generally speaking, the higher the risk, the higher the return. If you take a high risk, you may make a large gain or you may suffer a large loss, but if you avoid the risk completely, you will not experience any gain or loss. Your ideal portfolio should carefully weigh risk based on your risk tolerance.

Performance measurement-You can benchmark and measure your investment performance, track any errors and set risk-return ratios. If you hire a portfolio manager, remember to consider his investment style in portfolio performance management.

Asset Allocation-Assets change in different ways and have different degrees of stability. Choosing a portfolio of assets helps reduce risk and increase returns by measuring volatility and investing accordingly.

Diversification-Mitigating the impact of market volatility and investment risk by investing in different securities, markets and sectors of the economy. This means that if one market crashes, you won't lose all your money.

Readjustment-The market value of securities changes over time, affecting your investment returns and their weighting in your portfolio. Regularly readjust your portfolio to ensure that your risk and return are well balanced by adjusting the asset weights back to their initial levels.