The first step is understanding the investor's and time horizon . Short-term goals (1-3 years) usually require conservative assets like bonds or cash, while long-term goals (10+ years) allow for the volatility of stocks. Constraints such as liquidity needs, tax implications, and legal requirements also shape the strategy. 2. Asset Allocation
Markets are dynamic. Over time, a portfolio’s original asset allocation will drift as some investments grow faster than others. is the process of selling over-performing assets and buying under-performing ones to return to the target allocation, ensuring the risk level remains consistent with the investor's original plan. 6. Performance Evaluation Managing Investment Portfolios
High liquidity and safety, though vulnerable to inflation. The first step is understanding the investor's and
To minimize the impact of any single asset's poor performance, managers spread investments across various sectors, industries, and geographic regions. The goal is to hold assets that are not perfectly correlated, meaning they don't all move in the same direction at the same time. 4. Portfolio Construction and Implementation Managers choose between two primary styles: is the process of selling over-performing assets and
Attempting to beat the market through specific stock selection and market timing.
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