What does a financial portfolio manager do?

portfolio management

The most effective way to grow the assets of either a company or an individual is through investments. However, intelligent investing is an art and one that not just anyone can master. The successful US business magnate Warren Buffett once declared that avoiding putting all of the eggs in one basket was at the heart of a good investment strategy.

That means creating a portfolio of diverse investments that range from property to bonds, stocks and cash. Identifying opportunities across these different asset classes and keeping an eye on your investments will be difficult to fit in around your existing job though, even assuming you have the expertise to do so.

That is where a financial portfolio manager comes in.

What is the first step in financial portfolio management?

An expert in portfolio management from Chester or anywhere else will meet with you and help you to determine precisely what your financial goals are; whether it is in the short, medium or long-term. That process will begin with a discussion of what it is that you want to achieve. Some of the clients of portfolio managers are people who are looking to plan for their retirement, while others are people who wish to grow the assets of their businesses. The first thing that a portfolio manager does is to find out what his or her clients want.

Alongside establishing the underlying purpose of your investment portfolio, a manager will also look to determine what your attitude to risk is. Some people are comfortable with quite high levels of risk while others are not. Knowing which category you fall into will be important for the manager in determining the sort of investments to pursue on your behalf. Higher risk investments also tend to present the opportunity for higher rewards, and this is something that a financial portfolio manager will make clear to you at the start of the working relationship.

By the end of this point, you should have a clear investment strategy based on your ambitions and risk tolerance.

What comes next?

Generally speaking, there are four themes that investments can come under, which are:

  • Maximising client income
  • Maximising both income and growth
  • Long-term growth of client capital
  • Ethical investing

Once your manager knows which of these most closely matches your goals, he or she will start putting together a portfolio of investment opportunities that fits them. This will usually encompass multiple asset classes, rather than being exclusively focused on one – for example cash investments or stock investments – because diversification helps to achieve a better balance of high and low risk. When it comes to defining risk, portfolio managers have 10 parameters for calculating the overall level of risk involved; with 10 being ‘speculative (e.g. highest risk) and 1 being safeguard (e.g. lowest possible risk).

Is financial portfolio management an ongoing thing?

You may be thinking that once your portfolio has been set up and is starting to yield returns that you will no longer need the services of a financial manager. However, it would be wrong to jump to that conclusion. There is more to the job of managing a financial portfolio than just selecting suitable investments in the first place. Very few investments can simply be left once they have been put in place; instead, they must be carefully monitored.

Higher risk investments like stocks are affected by the performance of the market and sometimes a particular investment may under-perform or simply cease to be the right one for your needs. In that situation, changes will need to be made. This is a process known as ‘portfolio adjustment’. Part of the job of a financial portfolio manager is to regularly monitor your investments and make these changes as necessary. Then there is the matter of active versus passive management.

Active portfolio management is a high risk/return strategy that sees the manager looking to purchase low-priced assets that can be sold at much higher prices at a later date, for the benefit of his or her client. Passive portfolio management is a lower risk strategy that involves the creation of a stable but less rewarding portfolio that will need fewer adjustments. Most financial professionals will advise a mix of these two strategies.

What about discretionary management?

Finally there is the issue of discretionary versus non-discretionary portfolio management. Under the former, your manager will be handed complete freedom to make investing choices on your behalf. Under the latter, he or she will advise you, but the final decision will stay in your hands. The sort of management you opt for is likely to depend on how confident you are in your level of financial knowledge.

Now you know the basics of what financial portfolio managers do. You can get further advice from a qualified professional.

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