Who doesn’t love the idea of making money while they sleep?
Investing is one of the best ways to do that. But while it might sound simple, there’s a lot that goes into it behind the scenes.
And one of the most important components of investing is effective portfolio management.
Investing portfolio management is the process of selecting the right assets. Think of it like drafting your perfect fantasy football team.
Some people choose to hire a professional portfolio manager to choose and oversee their investments. Others choose to go the DIY route.
If you’re going to manage your own investments, it’s important to have the right tools by your side.
In this article, you’ll learn the basics of investment portfolio management, as well as all about the solutions we recommend to simplify the process.
What is investing portfolio management?
An investment portfolio is a collection of stocks, bonds, and other income-producing assets. It’s basically all of the investments that someone owns under a single umbrella.
Investment portfolio management is the art of choosing which assets will sit under your umbrella, and analyzing their performance over time.
Portfolio management involves coming up with an investment strategy, choosing assets that fit that strategy, and adjusting as you go.
Many individuals and organizations hire a portfolio manager to do this job for them. The portfolio manager works with a client to determine their goals and investing style and then takes over the job of selecting and analyzing the investments.
But you don’t have to work with a portfolio manager.
Many investors successfully manage their own portfolios. Not only can you save money on fees, but you’ll know without a doubt that each decision is made with your own best interests in mind.
Elements of portfolio management
Whether you decide to manage your own investment portfolio or hire someone to do it for you, there are a few key components to the job.
1. Goal setting
The first step to managing an investment portfolio is setting concrete goals.
There’s no one right investment strategy for everyone. And if you’re going to choose the right investments for your portfolio, you have to know what your ultimate goal is.
Your investment philosophy is going to look very different if you’re a 25-year-old saving for retirement versus saving to send a kid to college in a few years.
Many investors overlook this simple step, but it’s actually one of the most important.
Diversification is the process of divvying your money across many different assets rather than investing in just one.
Diversifying your portfolio helps to reduce risk. It ensures that if one investment performs poorly, it won’t affect your entire portfolio.
You can diversify your portfolio in 2 different ways.
First, you can diversify across asset classes by investing in multiple different types of investments. Putting your money into stocks, bonds, and cash.
You can also diversify within an asset class. For example, instead of using all of your money to buy stock in a single company, you’d buy stock in many companies.
3. Asset allocation
Deciding which investments to put your money into — aka asset allocation — is one of the most important tasks that comes with portfolio management.
When you decide on your asset allocation, you’ll consider a couple of different factors.
First, the asset allocation for you depends largely on your time horizon, or how much time will pass before you need to sell off the investment.
In general, the shorter the time horizon you have, the more conservatively you’ll invest.
But your asset allocation also depends on your risk tolerance.
The fact is that some people are just more comfortable with risk. High-risk investments come with a greater chance of losing your money, but they also come with a greater potential reward if they pay off.
As an investor, you have to decide for yourself just how much risk you’re comfortable with.
Portfolio management isn’t a set-it-and-forget-it job. Once you decide how to invest your money, your job is far from over.
Portfolio management comes with the ongoing task of rebalancing.
Rebalancing is the process of adjusting where you keep your money based on changes with your investments. One of the most important reasons to do this is because as your investments earn money, your allocation will change.
Let’s say you decide to put 70% of your money into stocks and the other 30% into bonds. Historically, stocks provide a larger financial return than bonds. So over time, the stocks you own will make up more than that original 70% of your portfolio.
To rebalance your portfolio, you might sell off some of your stocks and use that money to buy bonds so that your portfolio more closely resembles your original asset allocation.
You’ll also probably want to rebalance your portfolio as your time horizon shrinks. The closer you get to your goal, the more of your money you might want in safer investments.
5. Tax minimization
If you’re making money from investments — or from anything else — you’re going to face tax consequences. After all, the government usually expects to get a cut.
One of the lesser-known elements of portfolio management is working to minimize your tax burden. Portfolio managers have plenty of tricks they use to accomplish this.
If you’re managing your own portfolio, you might choose to work with an accountant who can advise you on how to minimize your tax liability.
Types of portfolio management
Your portfolio management strategy is going to depend on your investing goals and your personal investing style. Let’s talk about the 2 typical types of portfolio management.
Active portfolio management
Active portfolio management is a hands-on investing style. When you choose this type of portfolio management, you often hand-pick individual stocks and bonds for your portfolio.
Then, as time goes by, you compare your portfolio’s performance to that of a broader stock market index like the S&P 500. Investors using this investment style often aim to beat the market, rather than just match it.
Individual investors can choose to actively manage their own portfolios. But more often, they might hire a portfolio manager to do this on their behalf.
A portfolio manager will charge a fee — often a specific percentage of your portfolio — and choose specific investments for you. Just make sure any added return you might see overcompensates for the pricier fee.
A mutual fund is also an example of active management, as there’s a portfolio manager who selects each investment for the fund.
Passive portfolio management
Passive portfolio management isn’t nearly as hands-on as active management is.
Passive management often involves investing in index funds that track the stock or bond market as a whole.
With this investing strategy, you don’t have to regularly check in on each stock you own. And you can rest assured that your returns will mirror those of the index you invest in (or the market as a whole).
Keep in mind that this management approach isn’t entirely hands-off. If you’re aiming for a specific asset allocation, then you’ll still need to regularly check-in and adjust your portfolio as needed.
An even more passive approach would be to invest in a target-date fund.
These funds are tied to a particularly end-date — often the year you plan to retire. They hold multiple different types of assets, and automatically rebalance as you get closer to your end-date.
The final passive portfolio management strategy available is the use of a robo-advisor. Using one of these services is like hiring a portfolio manager without paying portfolio manager prices.
Robo-advisors choose investments on your behalf based on your investment goals. They rebalance your portfolio automatically, so you don’t have to worry about it.
Not sure whether passive or active management is for you? It’s worth noting that only 23% of actively managed investment funds outperform their passive counterparts.
Investing portfolio management toolsAs an individual investor or organization, you might decide to manage your own portfolio instead of hiring the job out. And if that’s the case, you’re going to need the right tools by your side.
Specifically, you’ll want an investment tracker to help you stay on top of the assets you own and how they’re each performing.
A few features to look for in an investment tracker include:
- The opportunity to see all of your investments in one place
- The ability to compare fees across different investments
- A way to track the performance of each asset
- The ability to see what percentage of your portfolio a particular asset makes up
Depending on your unique needs, monday.com provides 2 tools that can get the job done.
Portfolio management template
Using monday.com’s portfolio management template, both individual and institutional investors can see their full portfolio in one place.
At a quick glance, you can see each investment along with the amount you’ve invested, its current value, and the amount of risk it carries. The risk rating is an excellent way to quickly ensure you have a well-balanced portfolio.
This template is also well-suited to companies and venture capital firms, because you can assign a member of your team as the representative for each investment.
Investment tracking template
The other investment management tool available on monday.com is the investment tracker template.
Designed for companies, this tool can help you organize current and prospective investment opportunities. You can track information such as the stage in the process, the industry, and the maximum amount you’re willing to invest.
The real selling point of monday.com’s templates is their customization.
Your investing style might not look quite like everyone else’s, and you need a tool that reflects that. Because you can customize the templates, you can ensure they fit your individual needs.
Get started managing your portfolio
Portfolio management is the process of choosing and maintaining the right mix of investments based on an individual or organization’s objectives.
There’s a lot that goes into investment portfolio management, from choosing your investing style to deciding on the right asset allocation for you.
And even once you’ve chosen your investments, there’s still the task of monitoring and analyzing them, making adjustments as needed.
One of the most important elements of investment portfolio management is having the right platform by your side.
You can use monday.com to manage your personal investment portfolios. Use monday.com’s investment tracker template to get started.