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Peak Global Management Japan: Types of Portfolio Management
With Japan Peak Global Management one can get a great benefit with portfolio management among many other financial services available. Read more.
By: Peak Global Management
Portfolio management can actually be done in a number of ways. Let's take a look at each type.
Discretionary and Non-Discretionary
Discretionary and non-discretionary portfolio management are two types of portfolio handling systems. For discretionary portfolio management, the investor allows the portfolio manager to handle financial needs on behalf of the individual. These needs may include paperwork, filing, and documentation. The portfolio manager will also have the authority to make decisions on behalf of the investor.
Active and Passive
Aside from the previous two, there is also active and passive portfolio management. Active portfolio managers have clear and active involvement when it comes to the buying and selling of certain assets and securities. Their involvement is there to ensure that the investor generates maximum returns.
In contrast to active portfolio managers, passive ones stick to a fixed design of the portfolio in order to keep up with the market situation. This type of portfolio management is done in order to mimic market returns over time.
All of these types of portfolio management have their advantages and disadvantages. In the end, it is up to the portfolio manager and investor to come to terms with the manager's authority and involvement.
Key Considerations in Portfolio Management
As mentioned earlier, portfolio management involves managing existing assets and plotting out one's investment track. In doing so, there are some things that individuals should consider as they manage their portfolio.
The term "diversification"
Diversification simply refers to spreading assets—primarily cash—across various investment vehicles, geographies, industries, companies, or sizes. This way, if one investment sinks, the entire portfolio can still stay afloat.
Asset allocation largely goes hand in hand with diversification. This concept is primarily based on the reality that some assets are more volatile than others. Hence, mixing assets and investment vehicles can lead to balance and risk protection.
Deciding the amount of assets to allocate to a specific investment may largely depend on one's risk tolerance. Those who invest aggressively may opt for more volatile options, such as equity stocks. On the other hand, conservative investors may opt for less risky vehicles, such as bonds.
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