Portfolio Management Process

A Portfolio is a combination of financial assets such as bonds, stocks, commodities, currencies, mutual funds, exchange traded funds (ETFs), and real estate investment trusts (REITs) and including tangible physical assets such as land, property, art and so on.


A Portfolio is a combination of financial assets such as bonds, stocks, commodities, currencies, mutual funds, exchange traded funds (ETFs), and real estate investment trusts (REITs) and including tangible physical assets such as land, property, art and so on.

portfolio management

Portfolio Management

Portfolio Management refers to managing an individual’s investment through appropriate investment tools at the right time with suitable quantum of money in order to generate maximum return with minimizing the risks within a stipulated timeframe.

Composition of Portfolio depends on three major factors

  • Risk appetite
  • Time duration
  • Quantum of money invested
There are three types of investors
a). Risk Seeker
b). Risk Neutral and
c).Risk Averse.

Let us look at three different types of portfolios for each category of risk.

Conservative Portfolio

Conservative portfolio consists of investors with low risk tolerance with investment period of more than 3 years. Risk Averse Investors avoids volatility in their portfolio and seek returns that match or slightly up from the inflation rate.

For example: Conservative Portfolio Asset Allocation Conservative Portfolio Asset Allocation

Moderate Portfolio A moderate portfolio is suitable for those who accept moderate risk with duration of investment for more than 5 years. They are ready to face medium volatility in the market with the possibility of receiving returns that exceed inflation rate by a significant margin.

For example: Moderate Portfolio Asset Allocation Moderate Portfolio Asset Allocation

Aggressive Portfolio More the risk more will be the aggressive portfolio with time horizon of more than 10 years. Risk Seekers enjoy volatility in the market in lieu of higher returns.

For example: Aggressive Portfolio Asset Allocation Aggressive Portfolio Asset Allocation

Portfolio Management Process

There are three stages in portfolio management process portfolio management process STAGE 1

Developing The Investment Policy

  • Identifying investment objectives
  • Develop Asset Allocation Guidelines
  • Selecting Appropriate Performance Benchmark

Implementing The Investment Policy

  • Select Investment & Investment Managers
  • Monitor & Re-Balancing the Portfolio
  • Review Appropriate Risk Management Information

Monitoring The Investment Policy

  • Review Investment Policy
  • Analyze Performance
  • Re-affirm or change the investment policy

Portfolio Management Strategies for Different Age Groups

In financial planning asset allocation is a crucial aspect. What proportion of total investment must be invested into Equities and Debt? No Doubt risk tolerance is a major driving force determining asset allocation strategy for financial planning.

Below are two portfolio management strategies

Rule of 100 It is also known as conventional asset allocation model. It is very popular to measure the risk tolerance of an investor. It has suggested that if one is making financial investment from retirement perspective, then he/she should “own your age” in BONDS. For example: A 30-year old person should have invested in bonds to about 30% of the total investment and rest in equities. Similarly, a person who is 50 year old, he must invest 50% in bond market and 50% in stock market.

Portfolio Management Strategies for Different Age Groups

Rule of 120 This rule is the modification of ‘Rule of 100’ which states that invest in stocks 120 minus age of the person. For instance, a 30-year old should have invested 90% in stocks whereas only 70% should be invested by 50-year old person.

The basic idea is that young investors are able to recover losses faster in the stock market and moreover can take advantage of high returns which is not the case in old age person and due to availability of better healthcare facilities and greater awareness with respect to healthcare needs and dietary habits.

age wise portfolio management strategies

Few Points Taken Into Consideration While Developing Portfolio

1. Pay Attention to Tax Efficiency

Investors must focus on managing the overall portfolio for tax efficiency. Having uncertainty in tax treatment, tax cost is one of the major factors where Investors must make sure that they are taking maximum possibility advantage of tax deductions and considering necessary steps to reduce the tax liability.

  • Managing tax expense is one of the best ways to exert control over your portfolio.
  • Various instruments for tax efficiency: index funds, ETFs, municipal bonds, tax managed funds and so on.

2. Schedule Regular Check-up's Know When to Make Changes
1)Quarterly (or even less frequent) checkups are sufficient for most of the investors
2) Do not focus exclusively on performance
3) Instead, ask the following questions:
  • Has your portfolio’s asset allocation changed vs. targets? There is need to rebalance the portfolio when asset class exposures diverge by 5% or 10 % points relative to targets
  • Has anything fundamentally changed with your investments (expense ratio went up, manager left and so on)?
  • What is the progress against the target set?
Let us look at some Strategic Allocation Indexes strategic allocation indexes

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