Investment Portfolio Management
Investment portfolio management relates to professional management of shares, bonds and other securities and able movement towards the specified investment goals of the investors. The beneficiaries may be institutional investors or private investors. Institutions could be instanced as insurance companies, pension funds, corporations, charities or educational institutions. Investment management means the management of collective assets. The managers are usually experts in advisory management and act on behalf of their clients or investors to appreciate the wealth management of the latter. Investment management involves several activities like appointing a good fund manager, research, dealing, settlement and marketing of assets, internal auditing and preparation of statements.
Portfolio management refers to the diversification of investments with a motive of minimizing risks. Several assets are usually a good method to avert from massive loss probabilities. On the objective of investment portfolio management, a financial institution conducts an analysis regarding the investment. Such analysis includes goals and risk tolerance of the portfolio owner. Selection of assets, the weight of investment in these assets and the timing of investment are studied during these analyses. The performance, expected return and the risk that is associated are taken into account. The portfolio that is formed could be equal weighted, capitalization weighted, price weighted or optimal.
Accurate accounting is the vital aspect of investment portfolio management. Such accounting values and follows up the activities of portfolio management. Monitoring, Handling correspondence, Handling Payment and processing the key date are essential activities of accounting in investment management. In portfolio accounting, the happenings of transactions are recorded, classified and summarized. Market valuations, cash flows, taxes, fees, brokerage commission costs, custodial fees, management fees, transaction costs and exchange rates are brought into light in portfolio accounting. Portfolio accounting is very important because it influences the profit or loss of the investing client. The holding period which may be both long term and short term, have an important influence on portfolio management.
Modern Portfolio Theory
Modern Portfolio theory or MPT is an attempt to maximize profits and minimize risks. Though the theoretical concept has won laureates, it is practically challenged by behavioral economics. MPT is a mathematical calculation where a group of assets is brought together whose collective risk is lower than individual risk.
Diversification is aimed to reduce risks. Another method to reduce risks would be hedging. Diversification depends on positive relation among assets. Hedging depends on negative correlation among assets. Diversification is successful because investment in each asset is reduced.