Investment management has become increasingly important for both individual and institutional investors. With the rapid development of financial markets, more products and strategies are available, which also makes investment management more complex. This article will focus on broad run investment management and provide a review on how to manage investments effectively based on the context provided.
Set appropriate investment goals based on time horizon and risk tolerance
Investment goals serve as the foundation of investment management. Factors like investment time horizon and risk tolerance should be considered when setting investment goals. Conservative investors who seek stable income may set capital preservation as the goal. Aggressive investors with long time horizon may aim for maximum capital appreciation instead. The investment vehicle and strategy should match the investment goal.
Diversify across different assets to balance risks and returns
Diversification helps reduce portfolio volatility and improve risk-adjusted returns. Investors should diversify into different assets that have low correlation with each other, such as stocks, bonds, real estate, etc. Diversification can also be achieved by investing in securities across different sectors, market caps, geographies to smooth out unsystematic risks.
Rebalance portfolio regularly to maintain target allocations
As market conditions change over time, portfolio asset allocation may deviate from the policy target. Rebalancing realigns the weightings back to the original allocation to control risks. Rebalancing frequency depends on factors like transaction costs, tax considerations, etc. Annual or quarterly rebalancing is suitable for most investors.
Monitor and review portfolio periodically
Investment management requires ongoing oversight. Investors should periodically monitor and review the portfolio to ensure it remains aligned with the investment policy and objectives. The review process allows investors to make adjustments to the investments or strategy in response to changing needs and market developments.
Work with professional investment managers when appropriate
While DIY investing may work for some, others can benefit from the skills and resources of professional investment managers. They have the expertise to construct diversified portfolios, manage risks, and improve returns. Especially for large, complex portfolios, investment managers can provide specialized capabilities like tactical asset allocation and tax management. But the costs and fit should be evaluated.
Effective investment management requires setting suitable investment goals, diversifying across different assets, rebalancing and reviewing the portfolio periodically, and working with professional managers when appropriate. This helps investors better manage risks, improve returns and achieve investment success.