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How do I Choose the Best Portfolio Management Strategies?

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  • Written By: Jim B.
  • Edited By: M. C. Hughes
  • Last Modified Date: 10 October 2018
  • Copyright Protected:
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Choosing the best portfolio management strategies usually depends on the goals of the individual investor and the amount of risk he wishes to incur. There are three basic principles of portfolio management that most investors can benefit from understanding. First, it is generally a good idea to diversify a portfolio by choosing different types of securities so that a few which perform poorly won't have much impact on the overall strength of the portfolio. Second, a savvy investor should base his portfolio management strategies on the prevailing economic climate. Finally, an investor should try to base decisions about his portfolio on sound research and on what he wants out of his investment capital.

Trying to choose between the vast number of investment strategies offered by everyone from financial commentators on television to online investment experts to friends can be daunting. Ultimately, the decision of what direction to take comes down to the investor, who has to parse through all of this information to find the right fit for his own investment needs. As a result, choosing the right portfolio management strategies is an ever-challenging and constantly-changing task.

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Most investment experts agree that, no matter the investor, one of the best portfolio management strategies is diversification. By spreading out investment capital to various sources, an investor can buffer himself from risk and expose himself to many different possibilities. For example, an investor who has $1,000 US Dollars (USD) to invest and buys one share of stock with that money is betting everything on that one asset. On the other hand, if he bought 10 different assets at $100 USD each, he would have more chances at success and could still turn a profit even if a few of the assets struggled.

The goals of the investor are paramount when choosing between different portfolio management strategies. For example, an investor who wants to take some chances with his capital in the hope for big returns might want to concentrate on the stock market, which is volatile but potentially profitable. On the other hand, an investor looking to put his capital in safe investment vehicles might want to consider bonds, which offer much more security over a long period.

Investors need to be aware of the prevailing economic climate when attempting the choose the most effective portfolio management strategies. When economic times are hard, for example, many investors look to put their money in bonds, since they are able to keep their value even in financial turmoil. A good economy usually emboldens a large number of investors, which tends to bode well for the stock market as a whole. Portfolio strategies should be flexible enough to account for changing economic conditions.

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