Portfolio Management Basics

Portfolio management, at its core, is the art and science of investing capital with the goal of maximizing investment returns at a specific, desired level of risk. At one extreme end of this spectrum are ultra-aggressive investment strategies that seek to maximize return with a high appetite for risk. At the other extreme end of the spectrum are ultra-conservative investment strategies that seek to minimize risk, understanding the potential limitation on return potential. For any strategy in between, there is an optimum point at which the desired risk level matches an expected return. The line that accounts for these various risk/return combinations is called the “efficient frontier”.

Because every investor has different risk tolerances, time frames, and income needs, the strategy with which to achieve an investor’s investment goals will be different from one investor to the next. That’s why we at Hennion & Walsh believe every portfolio should be as unique as the fingerprint of the investor who owns it. The job of any portfolio manager is thus to work with each individual to help clarify needs and objectives, and then make informed recommendations as to what investments are appropriate for them.

No matter which specific investing strategy is appropriate for you, any proper investment approach should hinge on a multi-pronged strategy that provides individual investors with:

Investing Discipline and Oversight
Appropriate Asset Allocation
Proper Diversification
Continuous Rebalancing

If a portfolio manager you work with, or are thinking of hiring, does not provide one or more of the above benefits, we encourage you to have your portfolio reviewed by a different institution as you may be improperly invested.

You may:

1) Take more risk than you realize.
2) Pay too much in fees.
3) Miss out on potential incremental returns.

Either way, you owe it to yourself to determine if you are indeed invested appropriately.

Diversification does not ensure profit or protect against loss in a declining market.

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