Portfolio management involves managing an investor's financial assets by overseeing a selection of investments chosen to generate long-term capital gains. This investment management practice can be carried out by the investor themselves or through a portfolio manager (managed management). Typically, this task is entrusted to a financial institution, such as a bank or an investment company, with the goal of optimizing and maximizing a client's income from their savings and wealth.
Whether you manage your portfolio yourself or have a professional manage it for you, you need to be aware of the various essential actions to take, as well as the mistakes to avoid in portfolio management. Explanation
Before getting to the heart of the matter, you should primarily understand what portfolio management is. It involves growing a range of financial securities using the investor's income and wealth. Namely :
- shares,
- bonds,
- cash,
- investment funds such as FCPs (mutual funds) or SICAVs (open-ended investment companies), etc.
These bonds are selected to generate long-term capital gains.
These financial investments depend on the budget, income, and timetable of the investor, whether professional or private.
The portfolio manager adopts a strategy that depends on the client's risk profile, which in turn is based on his or her ability and appetite for risk.
Nevertheless, the very purpose of an investor or portfolio manager is to know what actions are essential in regard to the success of his or her investments, and the mistakes to avoid.
When managing a portfolio, one includes products that inherently have their own values, traded on a regulated market.
These products take the form – as mentioned above – of stocks, bonds, investment funds, cash, trackers, and even alternative investments (real estate, cryptocurrency, commodities, etc.).
Here are the steps you absolutely must take for good management of your portfolio :
First and foremost, you need to establish your investment objectives, as well as your budget for investing in the stock market, while making sure you don’t invest all your money. It's also important to assess the risks associated with the investment in question.
Whether you manage your portfolio yourself or have a fund manager do it for you, you need to come up with the best strategy to optimize your yields (or those of your client, in the case of a manager) while stabilizing the level of risk. This means taking into account the economic situation and market trends.
This is the very essence of good portfolio management: diversification.
This means not investing in a single sector. You must, of course, extend your field of activity across different types of assets. If one of the sectors you've invested in falls, you'll incur fewer losses, as it will represent only a small proportion of your portfolio. In fact, since it is virtually impossible to predict which sectors will be overvalued, losing or winning, it is preferable to invest in several at the same time, and in a reasonable manner.
This is known as portfolio arbitrage. It involves rebalancing your investments at regular intervals.
Since financial markets are constantly evolving, it's possible that certain stocks will appreciate in value after a certain period of time. In this case, you need to "arbitrate" the stock in question, preferably when it has given you a capital gain of over 50% and sell at least part of it to get a hold of the profits.
This capital gain will enable you to invest in other, more attractive sectors of the financial market.
Based on the goals you set for yourself, you must determine the ideal long-term asset allocation for your portfolio.
Well-distributed assets in your portfolio allow them to evolve independently, given that some are more volatile than others, meaning their courses and prices fluctuate more and more rapidly.
Of course, the allocation of the various asset classes in your portfolio must also be based on your acceptance of risk and the objectives you have set for yourself.
The main mistake to avoid in portfolio management is investing without an investment plan.
By defining your investment goals, you can perfectly define your risk profile, which is essential when entering the stock market.
Never invest blindly; always have a plan that aligns your investments with your needs. A portfolio manager is there to devise an investment strategy based on your expectations and to determine your risk-return profile.
Given that we live in a society where geopolitical events have a significant impact on all areas of activity (specifically on inflation, interest rates, stocks, bonds, etc.), it's important to protect yourself well and avoid facing the very harsh cycles of variation and suffering the consequences.Therefore, you should diversify your assets intelligently, while continuing to aim for a return that meets your expectations and requirements..
Therefore, it is important to surround yourself with one or more professionals in the field, who are thoroughly knowledgeable about the subject, understand your needs, and can guide and advise you. Portfolio managers apply a process inflexibly, regardless of the financial market's economic situation, which ensures that they always stay in line with their client's investor profile.
Admittedly, all this information is not easy to take in. Are you considering hiring a portfolio manager? It’s worth noting that the private bank Piguet Galland offers a personalized portfolio management service. With them, you will receive safer, simpler, and more effective support with the best advice, while offering you the best returns according to your needs and risk level.
More information about our Investment offer.