Portfolio Management

What is Portfolio Management?

It involves making decisions about the investment mix and matching investments to objectives with the view to balancing risk against potential return.

Portfolio management is all about assessing the strengths, weaknesses, opportunities and threats in the multitude of investments and asset classes available in an attempt to maximize return for a given appetite for risk taking into account the objectives of the client and their portfolio.

Investment Philosophy:   

This is the starting point of any investment strategy. It will guide you through the decision making process when choosing between the myriad of options available. To give you an example, my investment philosophy is as follows:

  • Markets are not always efficient.
  • No one investment approach is right all of the time.
  • Diversification only works to a point and still offers no guarantees.
  • Diversify across strategies not just asset classes – don’t put all your eggs in one basket.
  • Index investing can lead to investing in markets that are over-priced.
  • Use investment strategies not readily available to individual retail investors.
  • Focus on achieving consistent returns irrespective of index returns.
  • Use “best of breed” fund managers who excel in their particular strategy (you can’t be an expert at everything).
  • Incorporate “alternative” strategies and investments.

Portfolio Management includes determining:

  • The objectives of the portfolio – e.g. is the goal to obtain income or capital growth or a combination?
  • Longevity required – e.g. is the portfolio to be used for a short-term or long-term goal such as saving for a house or to support you through retirement?
  • Asset allocation – percentage of investment dollars to be allocated to the various asset classes available within Australia and overseas – e.g. how much to be allocated to cash & fixed interest type investments versus equities & property?
  • Stock selection – the actual investments or assets to be purchased within each asset class – which can be passive or active, direct or indirect investments (see below) – and do they match your investment philosophy and goals.
  • Plan implementation – e.g. buying investments directly or via an administration platform, completing forms, keeping records and so forth.
  • Ongoing monitoring and review – the asset allocation and individual investments should be reviewed regularly and adjustments made when necessary.

Passive or active management:

  • Passive management simply tracks a market index, commonly referred to as indexing or index investing. For example:
    • Index Managed Funds
    • Exchange Traded Funds (ETFs).
  • Active management involves a single manager or a team of managers who attempt to beat the market return by actively managing a fund’s portfolio through investment decisions based on research and decisions on individual holdings. For example:
    • Actively Managed Funds
    • Listed Investment Companies (LIC’s)
    • Separately Managed Account (SMA’s)
    • Listed Shares/Property Trusts
    • Direct Property

Sofie Korac is an Authorised Representative (No. 400164) of Prudentia Financial Planning Pty Ltd, AFSL 544118 and a member of the Association of Financial Advisers.

Financial Advice Sydney and the North Shore Office based in Gordon NSW

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