Investment Portfolio Management – Types, Importance, Objectives.
Investment Portfolio Management – Types, Importance, Objectives of Diversified Investment Portfolio by Age.
What is Investment?
“Investment is putting your saved money at the place to make more money.” It is a method of purchasing assets to gain profit in the form of dividends, interest, or rentals.
Examples of some good investment options are – shares and equity, bonds, mutual fund, real estate, bank fixed deposits etc.
Learn:
How to Set Investing Goals?
Setting investment goal or objectives is a must prior to investing money. In order to set an investment goal you must know:
- Your income, expenditure, saving and risks you can take.
- Why do you want to invest?
- How long can you leave your money invested.
- Your short-term financial needs?
Learn:
Best Investment Options for High Return
Following are some of the Best Investment Options:
| S. No | Investment Type | Return | |
| 1. | Equities | : | Dividend and Capital Appreciation |
| 2. | Mutual Fund | : | Dividend and Capital Appreciation |
| 3. | Bond | : | Yield |
| 4. | Bank FD | : | Fixed Interest |
| 5. | Real Estate | : | Rental Income and Appreciation |
- What Are: Best Investment Options for High Return
What is Equity Investment?
Equity is any valuable asset like shares of a company, real estate etc.
- Formula: Equity = Assets – Liability
Investment in a company by buying its shares is called equity investment.
- Learn: What is Equity Investment?
Portfolio Vs Age
The Less the Age, the More Risk you can take. The More the Age, the Less Risk you must take.
Age Wise Investment Portfolio Management Chart:
| Age | Investment Portfolio | |
| Above 60 | : | » 40% in Stocks and Mutual Funds » 10% in Cash » 50% in Fixed Income |
| 50 to 60 | : | » 50% in Stocks and Mutual Funds » 10% in Cash » 40% in Fixed Income |
| 40 to 50 | : | » 60% in Stocks and Mutual Funds » 10% in Cash » 30% in Fixed Income |
| 30 to 40 | : | » 70% in Stocks and Mutual Funds » 10% in Cash » 20% in Fixed Income |
| Below 30 | : | » 80% in Stocks and Mutual Funds » 10% in Cash » 10% in Fixed Income |
Diversified Portfolio – Why?
It is very important to have a diversified portfolio to minimize risks and protect your investment. Diversification of investment in different investment tools shields you from market fluctuation and potential risks.
- Understand: Diversified Portfolio – Why?
Investment Portfolio Management in Stock Market
Let us now understand few other important aspects of better investment portfolio management.
Portfolio Review
Assuming that you did all you homework and managed your portfolio based on your age and risk profile and you have a diversified investment portfolio. In a world of volatile stocks and investments, this is not a guarantee of making money or success. Now you have to be more professional in managing your portfolio to decrease or even eliminate risks.
For this, you need to periodically check and review your portfolio and make some changes depending upon the market conditions and other internal and external factors. When to review your portfolio depends on the type and amount of securities held in the portfolio.
Remember: It is your hard earned money and you just cannot lose it. It is expert advice to constantly monitor your portfolio and make adjustments as the situation demands. In a volatile market you have no option but to closely monitor and act swiftly and intelligently.
How To Make Adjustments in Investment Portfolio
Making adjustments doesn’t mean you need to hurry and buy or sell shares. Here are few expert tips and suggestion to help you.
- If a stock that you bought earlier has given you your consistent expected results but the price is not going up for some time, don’t rush to sell it off and close your position. Hold the stock. Have patience. The stock will improve when the current unfavorable conditions are gone.
- Never sell stocks thinking that you can buy it back when the prices are right. When you do this, you have to pay commission or brokerage to your broker for selling and again for buying. Also you may not be able to decide when to buy back the stock.
- Have a diversified portfolio. Invest in different sectors and in different stocks depending upon your fund and risk profile. As experts say – Never put all your eggs in one basket. Diversify your investment to decrease risk.
- Rotate your investment across different sectors. If a particular sector has done well in a session, it doesn’t means it will do better again in the next session. There is no guarantee. Think like a
professional investor and not like Intraday Share Trading. Look at sectors where there is less of Extreme Volatility. These are the sectors to target. Book profit from fully valued stocks and reinvest in current and future good “BUY” stocks. You can also consider targeting stocks that are temporarily down for some temporary reasons.
Measure The Performance of Your Portfolio
Monitor and measure the performance of your portfolio twice a month. Compare performance of individual stocks with overall performance of the market. If you have done all your study and research, you can ignore swing of the stock market.
Investment FAQs
What is Investment and its Types?
I have already Explained it Here: Types of Investment
What are the 4 Types of Investments?
4 Types of Investment are:
- Growth Investments: These are long-terms investments for capital appreciation. Examples - Growth Stocks, Real Estate Property.
- Defensive Investments: These are Low Risk Regular Income Generating Investments. Example - Cash Investments and Fixed Interest Investments.
- Cash Investments: Defensive Investment. Examples - Savings Bank Bank A/Cs, Term Deposits.
- Fixed Interest Investments: Defensive Investment. Examples - Government Bonds.
Stock Market Sectors - 4 Major Sectors and 11 Sub Sectors
How do I invest my Money?
- Decide on the Type of Investment you want to make - Growth (Long-Term Stocks or Real Estate) or Defensive (Cash or Interest Investment).
- In order to Invest in Real Estate Property, you will need huge finance.
- For Investment in Growth Stocks, you will need a Demat Account with a Trading Account linked with a Bank Savings A/C.
- For Cash Investment open a Bank FD to earn Interest.
- For Fixed Interest Investment, buy Bonds.
How do Beginners Invest?
Beginners can start with Low-Risk Investment Options such as Mutual Funds via SIP or Cash Investment such as Bank FD. Once they gain knowledge and experience, they can shift to much complex Growth Investment Options.
What is Difference Between Savings and Investment
| Savings | Investment |
| It the money you set aside from your income for some particular goal like - Emergency, Education for Children, buying a car, tour or travel etc. No Risk, Less Growth. | Putting your money at a place to allow it to grow and provide returns. Returns can be used for bigger financial goals like - Buying a house, higher education for children etc. High Risk, High Return. |
Types of Investments Based on Risk Profile
| Low Risk | Medium Risk | High Risk |
| Less-Risk, Less-Returns. Examples - Govt. and Corporate Bonds, Treasury Notes, Bank FD. | Moderate-Risk, Moderate-Return. Examples - Preferred and Utility Stocks, Income Mutual Funds. | High-Risk, High-Returns. Examples - Equity Investment, Mutual Funds, ULIPs.etc. |
Life Stages and Investment Plans
- First Job: This is First Stage and START of investment journey for Beginners. Since, you have limited income and savings, you need an affordable Investment Plan that does not require Lump Sum Money. Few good Investment Options for People with First Job are - SIP in MFs, ELSS (equity-linked savings scheme), ULIPs and Term Insurance.
- Marriage: This is the second stage of life. You need to focus of family planning, healthcare and other long-term goals. Few good Investment Option for people in this very important stage of life are - Personal and Family Health Insurance, PPF (Public Provident Fund), ULIP (Unit Linked Insurance Plan) and NPS (National Pension Scheme)
- Child Birth, Buying a House, Children Education: This stage of life demands long-terms Investments to make life secure. Few good Investment Options in this Stage are - ULIPs and Savings Plans.
- Retirement: This is the 4Th stage of Life and Investment. You cannot take high risks. Investment must be safe and secure. Few good options are - Money Back Plans, Bank FD, Immediate Annuity Plans and Unit-linked Retirement Plans.
Learn:
- Portfolio Vs Age – Portfolio and Age Relationship
- Best Investment Options for Senior Citizens
- Best Investment Options in India for Young Age Adults
Conclusion
Investment Portfolio Management is all about taking the RIGHT DECISION at the RIGHT TIME. Never put all your eggs in one basket. Diversify your investment to decrease risk.
I hope you learnt a lot. Please SHARE this with others. Thanks!
Also Read:
- How to Open Demat Account in India?
- Where to Open Demat Account Online in India?
- Share Trading Mistakes to Avoid
- What is PE Ratio (Price-To-Earnings Ratio)
- Intraday Trading Tips and Strategies for Beginners
- Types of Orders in Stock Market in India
- Stock Market Terminology for Beginners
- How Stock Market Works?
- What is Demat Account?
- US Top 10 Companies by Market Cap
- Solar Energy Companies in India
- How to Invest Like a Professional Expert?
- Digital Gold Investment
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