The key principles of portfolio management are as follows:
1. Diversification: Diversification is an essential principle of portfolio management. By diversifying investments across different asset classes and sectors, investors can mitigate risks and improve returns.
2. Risk Management: Portfolio managers must ensure that their investment portfolios are designed to manage the specific types of risks that their clients face. This includes both systematic and unsystematic risks.
3. Asset Allocation: Asset allocation is a process that involves identifying the appropriate mix of assets that will help investors achieve their investment objectives. Asset allocation strategies must take into account an investor’s risk tolerance, time horizon, and investment goals.
4. Active Management: Active portfolio management involves selecting and investing in individual securities or funds with the goal of outperforming the market. Active management requires a high level of skill, research, and analysis.
5. Rebalancing: Portfolio managers must review and rebalance their investment portfolios regularly. This involves selling assets that have performed well and reinvesting the proceeds in underperforming assets. Rebalancing helps to maintain a diversified portfolio and manage risks.
Using these principles, portfolio managers can optimize investment returns by selecting the appropriate mix of assets, actively managing their portfolios to take advantage of market trends and opportunities, and regularly reviewing and rebalancing their investment portfolios to maintain optimal diversification and risk management.
