Investment companies are financial institutions that pool money from investors and invest that money in a portfolio of securities like stocks and bonds. One of the most common and important services offered by investment companies is portfolio management. This service involves professional investment managers designing and managing investment portfolios to help investors achieve their financial goals.
Portfolio management provides expertise in assembling investment portfolios
Many individual investors lack the time, resources and expertise to research and assemble a properly diversified investment portfolio on their own. Portfolio management provides access to professional investment managers who have the skills and resources to construct optimized portfolios tailored to an investor’s objectives, risk tolerance and time horizon. The investment manager handles all the buying, selling, monitoring and rebalancing of the portfolio to maintain the intended asset allocation.
Portfolio management offers diversification to reduce risk
Portfolio management enables diversification across different asset classes like stocks, bonds and cash as well as diversification within each asset class across market sectors, geographies, investment styles and so on. A properly diversified portfolio constructed by a skilled investment manager can help reduce volatility and investment risk compared to concentrating investments in just a few securities or asset classes.
Investment companies provide easy access to portfolio management
Investment companies like mutual funds and exchange-traded funds offer individual investors an easy and affordable way to access professional portfolio management services. By pooling money from many investors, investment companies can provide low-cost diversified portfolios and offer features like automatic reinvestment of income. Investors can choose from a range of portfolio strategies offered by different investment companies.
Portfolio management provides active management and index strategies
Investment companies offer both active and passive portfolio management strategies. In active management, managers aim to outperform the market by selectively picking securities they believe will do better than average. Passive index-based strategies aim to match the return of a market index like the S&P 500 by holding the same securities in similar proportions.
In summary, a key service offered by investment companies is portfolio management, which provides investors with professional expertise in constructing diversified, risk-optimized investment portfolios. This service helps investors conveniently achieve their financial goals.