Portfolio Management

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Definition of 'Portfolio Management'

Portfolio management is the process of investing and managing a group of financial assets, such as stocks, bonds, and cash equivalents. The goal of portfolio management is to create a portfolio that meets the investor's specific goals and risk tolerance.

There are many different approaches to portfolio management, and the best approach for an individual investor will depend on their unique circumstances. Some of the factors that an investor should consider when choosing a portfolio management approach include their age, income, investment goals, risk tolerance, and time horizon.

One common approach to portfolio management is to use a target-date fund. A target-date fund is a mutual fund that is designed to meet the needs of investors who are saving for retirement. Target-date funds typically invest in a mix of stocks and bonds, and the mix of assets changes over time as the investor approaches retirement. This helps to ensure that the portfolio is properly diversified and that the investor's risk is gradually reduced as they get closer to retirement.

Another common approach to portfolio management is to use a risk-based approach. A risk-based approach involves allocating assets to different asset classes based on their risk and return characteristics. For example, stocks are typically considered to be riskier than bonds, so an investor with a low risk tolerance might allocate a larger percentage of their portfolio to bonds and a smaller percentage to stocks.

No matter what approach to portfolio management an investor chooses, it is important to remember that there is no guarantee of investment returns. The value of a portfolio can go up or down, and investors may lose money. It is important to understand the risks involved in investing before making any decisions.

Portfolio management is a complex topic, and there is no one-size-fits-all approach. The best approach for an individual investor will depend on their unique circumstances. By understanding the different approaches to portfolio management and considering their own needs and goals, investors can make informed decisions about how to invest their money.

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