Definition And Types of Portfolio Management Process


Portfolio is the original term used in English language, a portfolio which means a minimum of two items or more are held by the investor or its management, among others, investment portfolio, brand portfolio, teaching portfolio, and so forth. The purpose of doing a portfolio is to reduce the risk to the party who holds the portfolio. Risk reduction was done with the diversification of risk.

In building a portfolio of the investor-owned investor characteristics must be understood. Characteristics vary widely and different investors. By understanding the characteristics of the investor fund manager can advise the portfolio to be constructed for the benefit of investors. Portfolio will not be built regardless of the political situation, economy, social programs in a country. Economic development is more highly influential, especially the development of interest rates.

Stages of the process of portfolio

Portfolio process has four stages, namely stages of the investment objectives, stages of market expectations, the stage of building a portfolio, and performance evaluation stage.

Investment objective setting stage preliminary to be done by all parties if you want to manage an investment portfolio. At this stage, investors must understand the magnitude of risk tolerated by the investor on its investment portfolio.

Typically, the tolerable risk is closely related to the desired rate of return. If there is a high risk that the return rate would be higher as well. Therefore, it is necessary to understand the characteristics of the investor concerned. If investors want low risk and low return rate investors are generally risk averse (risk averse). Investors who want a high return rate and a tolerable risk is also high that investors have high risk characteristics also known as speculators.

Investment aims to provide opportunities for the funds invested to develop when used as a fund investing in the future. If so, to what their own funds now? What if the value of funds held has decreased? This should be properly addressed by the investor.

Other variables that also must be considered an investor in this phase is the period of investment (time horizon). Investment period set a benchmark for investors to determine which will be invested in investment instruments. If the investor has an investment period of 5 years so investors can make investments to the investment instruments that have a 5-year period as 5-year bonds and stocks.

Another question that also needs to be answered in this stage, whether the investor has a special desire to invest in or owned a portfolio? Whether the investor wants the portfolio does not have an instrument that is considered incompatible with the teachings of their religion?

The second phase of an investor to do is gather information on all existing investment instruments, and how the desire of all parties to the investment market. The information required on the market expectations of investment instruments. If market expectations are too low or too high and not consistent with the objectives of investors, then the investor should be revised to conform to the re-The aim of the market. If the market does not fit the expectations of investors will find the investment cycle that is not appropriate.

The third stage, the stage of implementation expertise of investment managers for the desire of investors and the existing market situation. At this stage, the investment manager buys and sells investment instruments in accordance with the wishes of investors. When the investment manager to do research on the state of the market then fund managers already know that a financial asset portfolio of the investment manager.

The fourth stage is the final stage of the portfolio is performing calculations on the portfolio they manage. Furthermore, the results of portfolio management in the form of rate of return (return) compared to the benchmark rate of return (benchmark). Satisfaction will occur when the investment manager portfolio rate of return higher than the benchmark rate of return. It also shows the skill of investment managers look good in terms of asset allocation, selection of instruments, and market timing ability.

The fourth stage of the portfolio of the above are interrelated, because the results achieved is the output of previous stages.