Portfolio Management is the art and science of selecting the appropriate investment instruments, such as shares, mutual funds, bonds, fixed deposits and other cash equivalents and allocating them in the proportion to generate optimum returns from the investment made. It includes, but is not limited to making decisions about investment mix and policy, matching investments to objectives, asset allocation for individuals and institutions, and balancing risk against performance.
Before getting into Portfolio Management Tips for Young Investors, let us first understand what Portfolio Management is. We begin by introducing the meaning and concept of Portfolio Management, the various types, how to manage investment portfolio and end the article with the tips.
Types of Portfolio Investment
The stock selection caters to individual’s financial goals, and therefore Portfolio Management is a strategy and solution towards downsizing risk and maximizing returns. But however, there are four unique strategies available and the appropriate strategy depends on the investors’ objectives, risk appetite, expectations and time horizon. These strategies are explained below:
Active Strategy – under this type, the manager’s objective is to beat a market index. This is achieved by buying undervalued stocks.
Passive Strategy – under this type, the manager’s objective is to replicate a market index. The hypothesis is that the company fundamentals will always be reflected in the stock’s price.
Discretionary – under this type, the manager has the liberty to make decisions on the investor’s behalf.
Non-Discretionary – under this type, the manager is simply a financial counsellor, wherein his or her role is merely advisory in nature and it is up to the investor whether to act on the advice given.
Now that you have learnt about the various strategies, you are in a much better position to understand how to manage stock portfolio. This is explored in the section below.
How To Manage Stock Portfolio
This section provides you with certain tools and guidelines regarding how you can go about managing your stock portfolio. This section is for investors who are confident enough to handle their own investment decisions and intend to manage their portfolio by themselves. The following are certain guidelines which will take you through how to manage stock portfolio.
Use Online Tools - Although financial planners and stock brokers offer services to manage your stock portfolio for you, you can maintain your own stock portfolio, as Many online broker services offer tools for placing your own sale and purchase orders, as well as tools to track your investments.
Have a Schedule – Maintaining and managing stock portfolio is a time-consuming exercise, and therefore, it is recommended that you keep aside couple hours every month to review, re-evaluate and re-balance your stock portfolio
Keep Records – It is recommended that you keep a record of the stocks which you have bought, sold and held at regular time intervals, such as a record of receipts and money spent.
Reassess Your Portfolio – Managing stock portfolio requires constant assessments, this is because stocks are volatile in nature and their performance varies according to company-specific and market-specific variables
Portfolio Management Tips – How to Manage Investment Portfolio
Here are some highly recommended tips regarding how to manage investment portfolio for young investors. These are mentioned as below:
Start Early – One should start saving as early as possible in their life, as over time savings accumulate and with the benefit of compounding, you are likely to earn much higher returns in the long-run.
Early start, Higher Risk Allocation – The rationale behind this is that, the younger you are, the less likely you are to have burdensome financial obligations, such as spouse, children, etc.
Diversify – The rationale behind this is to minimize risk by investing in stocks and securities across a broad spectrum of market categories.
Discipline and Regular Investing – In order to have a healthy portfolio, it is recommended that you invest regularly and in a disciplined manner.
Asset Allocation and Re-balancing – The rationale behind this is that you assign a certain percentage to different stock types, such as growth, dividend-paying, index funds and also other equity, debt and money market securities.
Tax is a burdensome obligation, and we recommend that you allocate a certain percentage of your investment amount to tax-saving instruments, such as, NPS (National Pension Schemes) and ELSS (Equity-Lined Savings Schemes), among others.