Portfolio Management: Definition & Everything You Need To Know

Portfolio Management: Definition & Everything You Need To Know

Most of us have some kind of financial goal, something we are saving or investing toward. Maybe it is a dream vacation, a comfortable retirement, or that perfect house. But how do you make your money work for you to reach these goals? The simple answer is intelligent portfolio management.

The truth is, there is a whole lot to consider when managing your money. This guide will help with it. We will explain portfolio management and its core principles, discuss portfolio management types, and give you strategies to keep your mix just right.

What Is Portfolio Management?

Portfolio Management - Portfolio Management Process

Portfolio management is choosing and managing a group of investments, called a portfolio, to meet an individual or institution's specific financial goals

It involves selecting the right asset mix, like bonds, cash, and stocks, based on risk tolerance and strategic objectives. The aim is to maximize the value of your investments while minimizing risk.

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5 Principles of Portfolio Management

Understanding these five portfolio management principles can make all the difference. Following them will make your investment portfolio management process much more manageable.

Portfolio Management - Benefits Of Diversification

Diversification: Diversification means investing in different assets across various sectors and asset classes. Real estate investment trusts (REITs), mutual funds, bonds, and stocks can all be part of a diversified portfolio. The idea is to reduce your risk.

Markets fluctuate. If you are heavily invested in a single company or industry, a downturn in that sector can hurt your portfolio. Diversification helps you weather these storms. 

New regulations, technological advancements, or economic changes can also disrupt industries. You can diversify to protect yourself from being overly exposed to these unforeseen events.

Asset Allocation: In asset allocation, you pick the right mix of these asset classes for your investment portfolio. This relies on your investment goals and risk tolerance. Here's what to consider:

  • Risk Tolerance: If you are risk-averse, choose more stable assets like bonds. If you are comfortable with more risk for potentially higher returns, allocate more to stocks.
  • Investment Goals: Are you saving for retirement in 20 years or a down payment on a house in 5 years? Your goals will determine the investment types you choose. Generally, longer time horizons allow for more risk as you have time to ride out market fluctuations.
  • Time Horizon: How long do you plan to hold your investments? For short-term goals, you need more liquid assets like cash or short-term bonds, while long-term goals can use growth-oriented assets like stocks.

Risk Management: Risk management is understanding and controlling the potential for losses in a client's investment portfolio. It is not about eliminating risk; that would also mean giving up on potential returns. 

Instead, it is finding the right balance between risk and reward. Portfolio managers use multiple strategies for risk management. Here's a closer look:

  • Stop-Loss Orders: These are instructions to sell an investment automatically when it reaches a specific price point
  • Diversification: We mentioned diversification before, which is also important for risk management. It helps reduce the impact of a single asset performing poorly.
  • Risk Tolerance Assessment: The first step is understanding your risk tolerance. How much volatility can you stomach? This helps determine the portfolio's overall risk profile.

Tax-Efficiency: Taxes can eat into your investment returns. Tax efficiency is about minimizing the tax burden on your portfolio. Here are ways to approach it:

  • Tax-Loss Harvesting: This strategy involves selling your investments at a loss to balance capital gains and lower your tax bill.
  • Tax-Advantaged Accounts: Tax-advantaged accounts, such as IRAs or 401(k)s, let your investments grow tax-deferred or tax-free until withdrawal.
  • Tax-Efficient Investments: Certain investments, like municipal bonds, offer tax-exempt interest income. Portfolio managers should consider these options to reduce their overall tax liability.

Rebalancing: The market doesn't always move in a straight line. Sometimes, stocks outperform bonds; other times, it is the other way around. This can cause your portfolio's asset allocation to drift away from your original plan.

Portfolio Management - Rebalancing

Rebalancing corrects the course for your portfolio. You can adjust your investments from time to time by buying or selling to match your targeted asset allocation. This helps your portfolio stay on track with your risk tolerance and investment goals.

For example, imagine your target allocation is 60% stocks and 40% bonds. If the stock market booms and your portfolio becomes 70% stocks, you can sell some stocks and buy bonds for the 60/40 split.

Remember, rebalancing doesn't guarantee profits but can help you stay on track. A portfolio manager can help you determine a rebalancing schedule that works for you.

Types of Portfolio Management

Let's understand different portfolio management types to determine which works best for you.

Passive vs. Active Portfolio Management

One of the first decisions you will face is whether to manage your portfolio actively or passively. Let's examine how they differ.

Passive Portfolio Management

Passive portfolio management means investing in funds that track a specific market index, like the S&P 500. These funds, often called index funds or ETFs (Exchange-Traded Funds), hold the same stocks as the index in the same proportion.

Here's what passive management offers:

  • By definition, you are automatically diversified across the holdings of the chosen index.
  • Since passively managed funds simply mirror an index, they have lower fees.
  • Passive investing is straightforward. You don't need to monitor individual stocks or make frequent trades constantly.

However, there are some things to consider:

  • You have less control over the investments in your portfolio since you follow an index.
  • Passively managed funds strive to match the market's performance, not outperform it. So if the market goes up, your portfolio goes up, but if it goes down, so does your portfolio.
Portfolio Management - Active Portfolio Management

Active Portfolio Management

In active management, fund managers actively research and select stocks or bonds they believe will benefit. They constantly monitor holdings and make adjustments as needed.

Here's what active management offers:

  • Skilled fund managers can outperform the market and get higher returns for you.
  • Active managers benefit from market inefficiencies and invest in specific opportunities they believe are undervalued.

However, active management also comes with drawbacks:

  • Since active managers constantly research and make trades, the funds have higher fees than passive funds.
  • Outperforming the market is difficult, and many actively managed funds don't consistently beat the market after fees.

Discretionary vs. Non-Discretionary Portfolio Management

Effective portfolio management is critical if you want to reach your financial goals. But how much control do you want over the investment decisions? Let's take a look.

Discretionary Portfolio Management

Portfolio Management - Discretionary Portfolio Management

Discretionary management means giving a portfolio manager full authority to make investment decisions for you. They will manage your portfolio based on your investment strategy and risk tolerance. Here's what it means for you:

  • The portfolio manager works to achieve your financial goals through investment decisions.
  • You will benefit from the knowledge and experience of a professional actively managing your portfolio.
  • You don't have to research individual investments or make daily decisions. The portfolio manager takes care of everything.

However, there is a flip side to the coin:

  • Discretionary management has higher fees since you pay for the manager's expertise and active management.
  • You give up control over the day-to-day portfolio and investment management. The portfolio manager makes the final decisions.

Non-Discretionary Portfolio Management

Non-discretionary management gives you more control over your investments. The portfolio manager researches and recommends investments, but you have the final say on buying or selling. Here's what it offers:

  • You can decide which investments go into your portfolio, giving you a sense of ownership.
  • Generally, non-discretionary management has lower fees compared to discretionary management.
  • You can ensure the portfolio matches your risk comfort level by selecting investments you are comfortable with.

However, there are some things to consider:

  • This approach is ideal if you have some level of investment knowledge.
  • You will need to spend time researching and understanding the investment recommendations. If you are short on time, hire a research assistant through a headhunter agency like Genius. It specializes in finding exceptional talent from a global pool and ensures you get highly-vetted experts. 

Strategic vs. Tactical Allocation Portfolio Management

The decision to allocate your investments across different asset classes depends on two approaches: strategic and tactical allocation.

Strategic Allocation Portfolio Management

Strategic allocation focuses on long-term investment goals and considers risk tolerance, time horizon, and financial needs. 

Based on this, you and your advisor determine the percentage of your investment account to dedicate to each asset class—stocks, bonds, cash, and potentially others. 

Someone young with a high-risk tolerance will have a more aggressive strategic allocation, with a larger portion in stocks for growth potential. On the other hand, someone nearing retirement will prioritize bonds for stability and allocate a smaller percentage to stocks.

Tactical Allocation Portfolio Management

Tactical allocation involves making short-term tweaks to your existing asset allocation. These adjustments consider current market conditions and economic forecasts. The goal is to improve returns or minimize risk in the short term.

For instance, if economic data suggests a recession is likely, a tactical advisor will recommend temporarily reducing your stock allocation and increasing your cash holdings.

8 Portfolio Management Best Practices

Follow these eight portfolio management best practices to maximize your investments.

Allocate Assets Based On Goals

This is all about matching your investments to your long-term plans. Consider your goals; maybe you want a dream vacation in five years or a comfortable retirement in twenty. The closer your goals are, the less risk you might want to take.

For short-term goals, choose low-risk investments, like bonds. For long-term goals, allocate a larger portion to stocks for higher growth, even though they can be bumpier in the short term. 

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Use Dollar-Cost Averaging

Portfolio Management - Dollar-Cost Averaging

Consider investing a fixed amount of money regularly instead of a lump sum. This could be weekly, monthly, or quarterly. It protects you from impulsive decisions based on market emotions. This way, you avoid the risk of investing a large sum of money right before a market downturn.

Dollar-cost averaging also helps you buy more shares when prices are low and potentially fewer when prices are high. Over time, this averages out the cost per share you invest in.

Integrate ESG Criteria

ESG stands for Environmental, Social, and Governance factors. Here's what this means:

  • Environmental: Consider businesses like Vivion, which source their ingredients ethically and emphasize quality control to minimize waste.
  • Social: The social impact of companies like Ben & Jerry's, a certified B Corporation that meets high social and environmental performance standards.
  • Governance: Evaluating corporate governance of businesses like Johnson & Johnson, which are committed to transparency in their financial reporting and disclosure practices.

If these factors are important, you can integrate ESG criteria into your asset portfolio management scheme. You can pick ESG-focused funds or research individual companies' ESG practices before investing.

Add Unique Investments

Stocks, bonds, and cash are solid foundations, but you should diversify beyond these asset classes. These include real estate investment trusts (REITs), hedge funds, private equity, or commodities.

These unique investments can yield higher returns, carry increased risk, and require a higher minimum investment. Carefully research these options and understand the risks before deciding.

Use Stop-Loss Orders

Portfolio Management - Stop-Loss Orders

The stock market is often unpredictable, and even the best investments can experience sudden drops. A stop-loss order instructs your broker to automatically sell a security if the price falls below a certain point

This helps limit potential losses if the market takes a downturn. However, keep in mind that stop-loss orders don't guarantee a specific price, and the security might sell for less depending on market conditions.

Conduct Periodic Stress Tests

Stress testing simulates your portfolio's performance in negative economic scenarios, like a recession or market crash. If the test results show your portfolio is more volatile than you are comfortable with, you need to adjust your asset mix. Here's how you can do it:

  • Gather your portfolio information. List your investments, including percentages for each asset class (stocks, bonds, and cash).
  • Choose stress test scenarios. You can find online stress testing tools like J.P. Morgan's stress tester or consult a financial advisor. Common scenarios include a 20% stock market decline, a recession, or rising interest rates.
  • Input your portfolio information and the chosen scenario into the stress testing tool. This will estimate the potential impact on your portfolio's value.

Evaluate Fees & Expenses

Investment fees and expenses can silently chip away at your returns over time. Here's what to watch out for:

  • Management Fees: Actively managed funds typically charge annual fees between 1% and 2% of your investment.
  • Transaction Fees: These are charged each time you buy or sell a security. They can vary depending on the investment and your broker.
  • Account Maintenance Fees: Some brokers charge fees for holding an investment account.

Here's the good news: Index funds and ETFs come with much lower fees, around 0.1% or less annually. This small difference in fees can greatly impact your long-term returns.

Consider Inflation-Protected Securities

Inflation can erode the purchasing power of your money over time. Inflation-protected securities help hedge against inflation. These securities adjust their principal value based on inflation so that your investments retain their value over time.  

Here are some specific options to consider:

  • Treasury Inflation-Protected Securities (TIPS): Offered by the US government, TIPS adjust their principal value based on inflation. This means that as inflation rises, the value of your investment goes up to preserve your purchasing power.
  • Series I Savings Bonds: Another US government option, Series I bonds offer a combination of a fixed interest rate and an inflation-adjusted rate. This can be a good choice for shorter-term savings goals.

These are just a few examples. Depending on your location, other inflation-protected securities might be available. Speak to a financial advisor about these options.

The Most Underrated Portfolio Type: Alternative Investments

When building a portfolio, most people focus on stocks, bonds, and mutual funds. These are traditional investments, and for good reason – they offer a solid foundation. Alternative investments are a broad category of assets that fall outside those traditional options

These investments add a layer of diversification to your portfolio. They have a low correlation to traditional assets. This means they perform differently during market swings and reduce your portfolio's overall risk. You can consider many options, but these three categories top the charts for us. 

Online Learning Platforms

Portfolio Management - Online Learning Market

The online learning market is booming as people seek convenient ways of upskilling. It is expected to reach $247.46 bn at a CAGR of 18%.  This explosive growth is because these businesses can reach a global audience with minimal additional costs.

Platforms like Target Internet offer subscription models. This means they generate consistent revenue even if individual course sales fluctuate. The best part is once the course content is created, the cost of delivering it is minimal. 

While some online course platforms are publicly traded, you have other options. Consider private equity or venture capital funds that invest in promising early-stage or growing EdTech sector. These funds offer the potential for high returns, but remember, they also have higher risk.

Golf Product Review Sites

Portfolio Management - Golf Equipment Market

The golf industry is worth $7.5 billion, which is massive. It has millions of passionate players who rely heavily on reviews and recommendations before making purchasing decisions. For these customers, golf product review sites like Breaking Eighty provide detailed assessments of different equipment

These reviews cover factors like performance, durability, materials, value for money, and how the product feels in real-world use. They also analyze products from a technical standpoint and explain their function for different user types.

The loyal audience for these review sites creates multiple strong revenue streams through: 

  • Advertising
  • Affiliate marketing
  • Premium content subscriptions

Look for angel investment opportunities in promising sports review sites. Angel investors provide seed funding to startups in exchange for ownership equity. You can also seek debt financing in exchange for interest payments, which can be a more stable investment approach.

Health and Wellness Industry

With a market size of $4,918 bn, the health and wellness industry is another exciting area where you can invest. This industry is a giant with many growing sectors. Here are three areas within health and wellness that offer interesting investment possibilities:

1. Sports Nutrition Supplements

The demand for sports nutrition supplements is on the rise. People are increasingly focused on fitness and performance, and sports nutrition supplement providers target this strong customer base with products they care about. 

Supplement companies have high-profit margins, especially for premium brands like Transparent Labs, which have strong reputations for quality and effectiveness. Plus, many supplement consumers develop regular buying habits. This creates predictable and reliable revenue streams for companies.

2. Meal Planner Apps

People are busier than ever, and meal planner apps have become a go-to for many. This emerging business model is gaining more traction because businesses like Ultimate Meal Plans offer ease and personalization. This convenience creates a sticky product with recurring revenue potential through subscriptions.

Plus, these can be easily scaled to reach a large audience. They can add new features, target different dietary needs, and expand to new markets.

3. Medical Alert Systems

The elderly population is growing rapidly. Medical alert systems provide peace of mind for both seniors and their families. Companies like GetSafe offer wearable devices that let seniors call for emergency help. 

This growing market with a strong emotional connection creates a stable and potentially lucrative investment opportunity. Plus, technological advancements can improve these systems, allowing them to grow.

Other "Boring Businesses"

Sometimes, the most exciting opportunities lie in seemingly unexciting places. While flashy tech startups grab headlines, don't overlook the potential of established businesses in what some might call "boring" industries. There's a reason these businesses are stable. Let's look at two specific examples:

SEO Agencies

In today's digital world, almost every business relies on online visibility. This means there is a constant demand for SEO services. SEO agencies like SIXGUN help businesses improve their search ranking

Economic downturns might increase demand as companies seek to squeeze more from their marketing budgets.

Social Media Marketing Firms

The social media world isn't going anywhere. Businesses need to be seen on social media, and they need social media marketing firms to do this. 

Businesses like Rivmedia use data analysis to understand audiences and optimize campaigns. This delivers measurable results and a strong ROI for clients. So investing in it is a viable option.

Virtual Assistants: How Can They Help With Portfolio Management

Managing a portfolio can be a time-consuming task. Between tracking investments and rebalancing your holdings, it is easy to feel overwhelmed. Virtual assistants (VAs) can streamline your portfolio management process. Here's how:

  • VAs can gather information from your brokerage accounts and investment platforms to keep your portfolio data up-to-date. They can prepare purposeful presentations that give you a clear picture of your portfolio's performance.
  • You can delegate company and industry research to your VA. They can compile relevant news articles, analyst reports, and financial data. This will save you hours of digging through information yourself.
  • Important deadlines, like investment contributions or option expirations, can easily slip through the cracks. A VA can manage your calendar and set reminders to ensure you don't miss any critical dates for your portfolio.
  • VAs can organize your investment statements, tax documents, and other important paperwork. They can also help you communicate with your broker or investment advisor.

Wishup: Make Your Portfolio Management Easy

Portfolio Management - Wishup

Wishup streamlines the VA hiring process by quickly connecting you with top talent. Here's why Wishup is your one-stop shop for VA needs:

  • Wishup's VAs go through a rigorous 3-step vetting process. This means you can access the top 0.1% of VA talent.
  • We can match you with a qualified VA and get them onboarded within 30 minutes. So you won't have to wait weeks to fill that crucial role.
  • At Wishup, we offer a risk-free 7-day trial. This lets you see firsthand how a VA can free up your time and increase productivity.
  • Wishup's VAs are proficient in over 70 different tools and platforms. This means you can find someone who seamlessly integrates with your existing tech stack.
  • Hiring a VA through Wishup is a cost-effective way to get your needed help. You only pay for the hours your VA works, and Wishup handles all the administrative tasks like payroll and taxes.
  • Wishup's VA replacement guarantee ensures a smooth transition if your VA does not meet your expectations. We will find you a new VA quickly and efficiently to minimize workflow disruption.


There is no single "right" way to manage a portfolio. It is personal and depends on your risk tolerance, financial goals, and overall financial situation. But regardless of the specifics, effective portfolio management means taking charge. So, understand your options and make smart decisions about where your hard-earned money goes.

If you are looking to streamline your portfolio management process, Wishup can help. We will connect you with pre-vetted, US-based VAs who can help with financial research, data entry, and scheduling meetings with financial advisors. Contact us via a free consultation or mail us at [email protected].


FAQs: Portfolio Management

What are the five techniques for portfolio management?

The five techniques for portfolio management are:

  • Asset Allocation: You decide how much amount of your money to invest in different asset classes, such as stocks, bonds, and cash. 
  • Diversification: Distribute your investments among asset classes and even within each class.
  • Risk Management: Identify, assess, and control the risks associated with your portfolio. You can utilize techniques like setting stop-loss orders or option contracts.
  • Rebalancing: Rebalancing brings your portfolio mix back to your target allocation. You need to buy or sell assets to achieve this.
  • Tax-Efficient Investing: Look for ways to minimize taxes on your investments. Consider tax-advantaged accounts and strategically place investments within them.

What are the 5 phases of portfolio management?

Here are the 5 phases of portfolio management:

  • Goal Setting: Define your goals (retirement, house down payment) and assess how much risk you are comfortable with.
  • Portfolio Construction: Build your portfolio based on your plan and research. Choose specific investments within each asset class.
  • Implementation: Open accounts with brokerages or investment platforms and buy your assets.
  • Monitoring: Track your portfolio's performance regularly. Stay informed about market conditions and individual investments.
  • Rebalancing: Adjust your portfolio allocation to get back on track with your target asset mix.

What is an example of portfolio management?

Imagine you have $100,000 to invest. You choose to invest 50% in stocks, 30% in bonds, and 20% in real estate.

  • Stock Selection: You require choosing a mix of individual stocks and index funds. You select large-cap, mid-cap, and small-cap stocks, which spreads your risk across different company sizes.
  • Bond Selection: You need to invest in government and corporate bonds. These bonds will have different maturities to balance risk and return.
  • Real Estate Investment: You have to invest in Real Estate Investment Trusts (REITs). These provide exposure to the real estate market without owning physical properties.

Every six months, you review your portfolio. Your stocks have increased in value and now comprise 60% of your portfolio. To rebalance, you sell some stocks and purchase more bonds and real estate to return to your original allocation.