What is portfolio management?
Portfolio management is the operation of making decisions about investment strategy. It takes into account weighing potential investment growth against potential risks. Portfolio management is both an art and a science. It is all about matching investments to objectives and balancing performance against risk.
The key elements of portfolio management are asset allocation and diversification.
- Asset allocation: Combining a variety of assets, such as stocks, bonds, and cash is said to reduce risk in the long term. As some investments outperform others, the different categories of assets provides a greater potential for returns.
- Diversification: Since it is impossible to consistently predict which investments will gain and which will lose, the best approach is to diversify. Mixing a wide variety of investments is thought to pose a lesser risk and in turn yield higher returns.
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