A portfolio is a basket of stocks. Portfolio management of various instruments (shares, bonds, derivatives, etc..) and assets (such as real estate) are arranged in order to meet specified investment goals. A portfolio manager is a person who will help you create one to manage your risk and achieve your profit goals.
Role of a Portfolio Manager
If you end up choosing a portfolio manager, make sure that he helps you do the following:
- Evaluate your risk taking capacity and needs of return considering your liquidity, income and time frame. He also has to overcome all the legal and regulatory constraints.
- Make plans and policies to meet your needs and build the best portfolio by allocating funds between financial and real assets. This is known as asset allocation.
- Diversify your portfolio to eliminate all types of possible risks (systematic/unsystematic).
- Keep watching the changing capital markets, and the way it will affect your risk/return expectations. He should take appropriate steps to allocate and manage your funds.
- He should check your needs and circumstances.
- He should rebalance your portfolio when changes are necessary.
Portfolio managers should also help their clients minimize their total transaction costs. There are three ways to lower costs:
- Minimize taxes
- Reduce trading turnover
- Minimize liquidity costs by trading relatively liquid stocks
Above everything the portfolio manager should follow good ethics to safeguard his client’s funds.