Portfolio Management

When considering investment portfolio management, the first thing that comes to mind is that this can be a rather daunting prospect for most investors. Many turn to professionals to manage their stock market portfolio for them. The time involved, the math skills required to choose among certain strategies or evaluate their performance, the seemingly endless choices between companies to invest in -- no wonder a person can be intimidated. Added to this is the fact that the markets are in constant motion. Altogether, to the average person, portfolio management looks like a dizzying merry-go-round ride which they would rather avoid altogether.

Many aspects are involved in investing and in maintaining a stock market portfolio. A certain amount of energy and skill is necessary to not only keep up with, but actually profit from, changing market conditions. However, there are several things for the investor to think about which can make the process of understanding a stock market portfolio more rewarding, and hopefully, more profitable. Even if the management of assets is left for others to do, it is helpful to have a solid foundation of items in place before one begins to enter the investment arena. These items include the development of a philosophy of investment, an evaluation of one's own tolerance for risk, and a realistic understanding of the assets that are available for investing.

Why is having a philosophy of investment so important? Without one, the investor is like the captain of a ship in the open seas at night in a storm. The ship is symbolic of one's life and the cargo the assets for investing. The open seas illustrate the fact that others are also in this journey, and that hidden market currents lurk below, bringing the possibility of both danger and opportunity for reward. The night and storm indicate that the investor is not always able to see every facet clearly and calamity may spring up with little notice, like a sudden gale. Although actual ships have a variety of instruments to help guide them through stormy weather, these sometimes fail and the captain must resort to time-honored navigational methods using observations of the stars and basic equipment. Likewise, the investor, although often aided by sophisticated communication tools and guided by analysis of market conditions by computer programs, must still make the final determinations regarding his or her investments. A philosophy of investment portfolio management will help guide these decisions. Without one, an investor is at the mercy of the storm, an inviting target for unscrupulous 'advisors' and floundering from 'solution' to 'solution'. In the process, many assets are lost due to trading fees, transaction costs, and needless tax liability.

Once the need for a philosophy of investment is clear, there must necessarily be assets to invest. Careful thought must be given to ascertain that investment moneys are not drawn from funds needed for everyday living or set aside for a child's education. Investing involves considerable risk, and one must be prepared to be able to do without these resources should a worst case scenario develop. However, sources of extra funds may be more available than it seems. Perhaps it is possible to pick up a part-time job to gather funds for testing your investing acumen. Birthdays and other holidays are times when cash could be requested in lieu of other presents. Sometimes unexpected bonuses or rebates can be set aside for a stock market portfolio rather than lost in increments through pointless expenditures.

An evaluation of risk tolerance is another area which must be considered. The investor needs to determine where he or she is at regarding an investing time line. Some strategies are more suitable for younger people who have years to fine-tune investment portfolio management techniques. Other more conservative methods or financial instruments may be more appropriate to investors nearing retirement age. Like the builders of the tower in Luke 14:28, those involved in investment portfolio management must be able to evaluate their positions carefully: "For which of you, intending to build a tower, sitteth not down first, and counteth the cost, whether he have sufficient to finish it?"

There are many resources available to learn more about investment portfolio management. Books, articles and newsletters abound on the subject, and Internet searches will yield plenty of reading material. It is even possible to practice trading stocks on the computer with virtual stock market portfolios. Time can be a friend in learning about the investment business. Take plenty of time to evaluate your decisions before investing. The ship's captain mentioned earlier had to spend time learning navigation techniques, but when the storm came on, you can bet that he was glad he did. Similarly, whether one manages his own stock market portfolio or not, understanding these basic elements of investing -- realistically determining available assets and tolerance for risk, and using an investment philosophy to help guide decisions -- can assist the investor to move forward with confidence and arrive safely at his or her desired destination.

Time is another aspect to consider in deciding whether portfolios will be managed by oneself or others. True, time will be needed to go through the procedures outlined above. This in itself is an investment, though it will pay certain dividends. Time also will be required if one decides to maintain one's own portfolio in a manner which will encourage profitable returns. This is probably one of the most common reasons for deciding to let an investment firm manage assets. It is a choice which can be figured into the whole investment process from the start. If a person decides to allow others to manage his or her assets, be sure to choose an advisor carefully and remain an active participant in financial decisions.