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How to Manage Your Portfolio Like a Professional?

Managing your investment portfolio like a professional can seem like a daunting task, but does it really have to be? By following a few key principles, you can create and maintain a portfolio. Read ahead to know how!

  • 6,946 Views | Updated on: May 22, 2024

Investment is an effective measure to put your money to work and secure your future financially. However, people often refrain from investing due to the risk involved and market volatility. This is where portfolio management comes into play. One of the critical components of a successful portfolio is risk management. Assessing the risk enables you to invest wisely and minimize the risk while yielding higher returns.

Here is how to manage your portfolio like a professional!

What is Portfolio Management?

Portfolio management is the art of investing in different investment tools in the right proportion. Investing in different assets makes the risk diversified, thereby increasing the returns. The portfolio collects financial assets like stocks, bonds, derivatives, cash, commodities, insurance, and cash equivalents, including Exchange-Traded Funds (ETFs) and closed-end funds owned by an investor.

Managing a portfolio helps to guide the investor in selecting the best available alternative that will provide the expected rate of return for any given degree of risk. It is a strategic decision addressed by investors or portfolio managers.

For example, in market-linked insurance policies such as Unit-linked Insurance Plans (ULIP) or Systematic Investment Plans (SIP), the risk involved in investing is minimized by creating a diversified portfolio. Equity-based funds involve high risk, while debt-based investing is suitable for those with low risk-taking appetites. This enables the investor to invest flexibly according to their preferences.

How to Build a Portfolio?

By building a financial portfolio, not only can you increase your wealth, but you can also develop the habit of saving for unexpected situations. This disciplined approach to saving and investing can help you create an emergency fund, save for a desired purchase, or plan your home mortgage payments well in advance.

To build an appropriate portfolio, the first step is to allocate your investments among various assets such as stocks, bonds, government securities, insurance, and cash. This allocation should take into consideration your financial goals, investment horizon, and risk tolerance. It is important to clarify your current situation, future needs, and risk tolerance to determine the right asset allocation. However, it is also important to ensure your family’s well-being by subscribing to term insurance plans that meet their requirements.

Once you have determined the appropriate asset allocation, you need to divide your capital among different assets. There are several ways to choose investments and securities that align with your asset allocation strategy. You can pick individual stocks, but it is essential to research and choose good-quality stocks rather than making investments based on rumors or unofficial tips. While selecting bonds, check the coupon, maturity, and bond type, and consider investing in government bonds for better returns and lower risks.

Mutual funds are another option that offers a wide range of asset classes and allows policyholders to hold professionally researched and selected stocks and bonds. It is important to remember that mutual funds are long-term investments that should not be touched for at least 10-15 years, and starting with a Systematic Investment Plan (SIP) can be a good option for beginners.

What is the Importance of a Portfolio?

A portfolio provides an effective investment plan according to your income, budget, and risk-taking appetite. Hence, it gives you a suitable and unique investment policy.

Portfolio management minimizes risk as the investment is made in different assets with different attributes. So, even if your investment suffers a loss in one sector, the risk is balanced by other assets, further maximizing the returns.

Portfolio management makes it easier to track the performance of your investment. The customization of assets and continuous updates of portfolios give you transparency and a complete understanding of how and where you should invest your money.

How to Manage Your Portfolio?

Now that you have understood the importance of portfolio management, you can build an investment portfolio customized. Professionals often regulate and maintain portfolios, but you can also manage your portfolio. So, how to manage your portfolio like a professional?

These are the main objectives one has to keep in mind while creating a portfolio:
Portfolio management is not a one-time process, so you can make the necessary changes and update your portfolio. However, here are some points that you have to consider while managing a portfolio:

  • Maximize the growth of capital
  • Security of the invested amount
  • Enhance liquidity
  • Tax planning
  • Diversify the risk
  • Increase the marketability of securities that you have invested in

A Portfolio Should Be Goal-Focused

Your vision of goals should be clear. You should know for how long and how much you can afford to invest. Prepare your portfolio according to your financial goals and budget.

Keep Long and Short-Term Portfolios Separate

Long-term investments refer to those that allow you to meet goals after several years or even decades in the future. Short-term investments are designed for goals closer at hand and provide returns in a shorter period. So, considering your goals, you should have an appropriate mix of long- & short-term investments, as the expectations and returns are different in both investments.

Diversify Your Portfolio

Do not put all of your eggs in one basket. If you invest all your money in one plan and that goes down, your portfolio will be doomed. So, you must diversify your portfolio by investing in various assets like equities, mutual funds, Gold, bank deposits, life insurance, etc. Also, you need to diversify among debt and multiple industries like infrastructure, IT, banking, cement, pharma, etc.

Insurance can be one of the assets you should not treat less in your portfolio. You can save taxes, protect your loved ones, secure their financial independence, and so on. Other life insurance policies like ULIP will help you earn market-linked returns, and a part of it can be a life cover.

Keep a Regular Track of Your Portfolio

Markets go up and down all the time, and your asset allocation will passively do its job protecting and growing your money with no hand-holding required. One thing that you need to do is check it regularly, half-yearly, or at regular relevant intervals. (Note: Remember that intervals should not be too long or too short)

Rebalancing the Portfolio

Keep yourself updated with the performance of your portfolio. If the assets have deviated from your target percentages, it is time to rebalance. You can rebalance the portfolio in one of two ways:

1. You can invest the money you have saved throughout the year to purchase new shares or assets.

2. You can even sell shares of the funds that did very well to purchase more shares of the funds that did not.

Why is Diversification the Key?

Diversification is a powerful tool for investors and businesses alike, providing a pathway to long-term success and financial stability. Whether you are investing in your personal savings or running a business, diversification is key to mitigating risk and maximizing returns.

  • First and foremost, diversification spreads risk. When you invest in a single stock or business, you are putting all your eggs in one basket. If that stock or business does not perform well, your entire portfolio or company is at risk. However, by diversifying your investments or business ventures, you can spread that risk across multiple assets. This means that if one investment or business fails, you will not lose everything.
  • Secondly, diversification can help maximize returns. By investing in a range of assets or businesses, you can take advantage of different market conditions and industries. Some investments may perform well in a bull market, while others may excel in a bear market. By diversifying, you can capitalize on the strengths of various assets or businesses and potentially achieve higher overall returns than if you invested in just one.
  • Thirdly, diversification can provide a hedge against economic uncertainty. Economic conditions can be unpredictable, and no one can predict the future. However, by diversifying your investments or business ventures, you can protect yourself from economic shocks. For example, if you have invested solely in the tech sector, you may be vulnerable to market crashes in that industry. However, if you have diversified your investments across different sectors and asset classes, you are more likely to weather such economic storms.
  • Finally, diversification is not just about spreading risk or maximizing returns. It is also about creating a sustainable, long-term strategy for growth. By diversifying your investments or business ventures, you can ensure that you are not overly reliant on a single asset or market. This means that you can adapt to changing market conditions, take advantage of emerging opportunities, and sustain your growth over the long term.

Types of Portfolio Management

Portfolio management is a crucial aspect of an investment, where a collection of assets are managed to achieve a specific financial goal.

Passive Portfolio Management

Passive portfolio management is a hands-off approach where the manager creates a portfolio that mimics a specific market index. The goal of passive management is to achieve the same returns as the market index with low fees and little maintenance. This strategy is suitable for investors who are risk-averse and want to invest in the long term.

Active Portfolio Management

Active portfolio management is a hands-on approach where the manager actively buys and sells assets to outperform the market. The goal of active management is to generate higher returns than the market index, but it comes with higher fees and risks. This strategy is suitable for investors who are comfortable taking on higher risks in exchange for potentially higher returns.

Strategic Portfolio Management

Strategic portfolio management involves a long-term investment approach that aims to balance risk and return by diversifying the portfolio across different asset classes. The manager aims to achieve the financial goal by rebalancing the portfolio regularly to maintain the desired asset allocation. This strategy is suitable for investors who have a long-term investment horizon and want to achieve their financial goals through a disciplined approach.

Tactical Portfolio Management

Tactical portfolio management is a short-term investment approach where the manager adjusts the portfolio’s asset allocation based on market conditions. The manager aims to capitalize on short-term opportunities and mitigate risks by making tactical changes to the portfolio. This strategy is suitable for investors who are comfortable with short-term volatility and want to capitalize on market opportunities.

Dynamic Portfolio Management

Dynamic portfolio management is a combination of passive and active portfolio management, where the manager uses a rules-based approach to make investment decisions. The manager aims to capture market opportunities while minimizing risks by making changes to the portfolio based on a set of predetermined rules. This strategy is suitable for investors who want to achieve higher returns while minimizing risk.

Final Thoughts

Portfolio management is an essential skill to manage your investment beneficially. You can customize your portfolio according to your unique requirements and financial goals. Design a portfolio such that it minimizes risk and maximizes returns. Keep a regular track of your portfolio and rebalance it if required.

Key takeaways

    With increasing inflation, the value of your savings decreases in the future. So investing is not an option but a necessity in today’s world. By implementing a disciplined approach and following the best practices of how to make a portfolio professionally, you can also maximize your returns while minimizing your risk exposure.

  • Portfolio management is the art of investing in different investment tools in the right proportion. Investing in different assets makes the risk diversified, thereby increasing the returns.
  • Managing a portfolio helps to guide the investor in selecting the best available alternative that will provide the expected rate of return for any given degree of risk.
  • By building a financial portfolio, not only can you increase your wealth, but you can also develop the habit of saving for unexpected situations.
  • Once you have determined the appropriate asset allocation, you need to divide your capital among different assets.

- A Consumer Education Initiative series by Kotak Life

Amit Raje
Written By :
Amit Raje

Amit Raje is an experienced marketer who has worked in various Fintechs and leading Financial companies in India. With focused experience in Digital, Amit has pioneered multiple digital commerce in India. Now, close to two decades later, he is the vice president and head of the D2C business department. He masters the skill of strategic management, also being certified in it from IIMA. He has challenged his challenges and contributed his efforts in this journey of digital transformation.

Amit Raje
Reviewed By :
Prasad Pimple

Prasad Pimple has a decade-long experience in the Life insurance sector and as EVP, Kotak Life heads Digital Business. He is responsible for developing user friendly product journeys, creating consumer awareness and helping consumers in identifying need for life insurance solutions. He has 20+ years of experience in creating and building business verticals across Insurance, Telecom and Banking sectors

In this policy, the investment risk in the investment portfolio is borne by the policyholder.

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