Imagine a situation where the technology sector is booming in a record manner. You feel sceptical in the first month, start to have a lot more hope in the second month and by the third month, you feel bad that you aren’t riding the boom. So in the fourth month, you decide to take the plunge and make some significant investments in the sector. Next month, you are richer by quite a margin and feel extremely happy with your decision. As a result, you then go ahead and make additional investments in the sector. By the twelfth month, you are neck deep in the one industry, but see no harm in doing so, as you also have sky high profit margins. On the thirteenth month, however, it turns out that the meteoric rise of the industry was based on a bubble, and in a span of days, almost the entire worth of your investment is wiped out. This is an unfortunate but realistic story.
This is where the importance of portfolio management comes in. So, what exactly is a portfolio in the first place? A portfolio is basically a collection of investment tools like stocks, mutual funds, commodities and such. Simply put, it is a comprehensive record of what you have done with your investments and what your current investments are. The importance of maintaining and managing a portfolio therefore lies in planning for the future. What is portfolio management then? It is basically the process of choosing the right investment policy to make sure that you maximise profit while at the same time minimising the chance of any possible risk.
To elucidate, let’s boil down the most important reasons to manage your portfolio.
- Better investment planning
A better look at your past investment strategies can give you a slightly better indication regarding your future investments. Not only this, but you can also plan more holistically while taking into consideration your age, propensity for risk, budget and your income. Once you consider all of these factors before making an investment decision your chances of loss significantly go down.
- Minimises the risk
This is just a reiterating a point but a very necessary one. Portfolio management reduces the risks of your investment strategy to an extent which should not be ignored.
- Customisable investment solutions.
Portfolio management gives you the opportunity to plan and account for specific goals you may have in mind and customise your strategies and expected returns and risks to your benefits.
- Tax planning
Taxes are usually a drain on your income and most people do everything they can to avoid any excess tax paid. A sound plan and well managed portfolio can thus go a long way for that.
So don’t just sit idle!!
Go ahead, give your portfolio some time and build a wealthy one.