Tasks in Financial Portfolio Management

by Dennis Hartman

Managing a single investment requires an understanding of the market for the investment and the skills to apply that knowledge in making decisions about it. For individuals who manage financial portfolios that include multiple investments, the process is much more complex. Financial portfolio management relies on a range of tasks to make the most profitable decisions over a period of time.

Classifying Assets

One of a financial portfolio manager's tasks involves classifying investment assets. By placing investment products into categories and organizing assets within a portfolio, the manager can pursue a plan for diversifying the portfolio. For example, a financial portfolio strategy may involve placing 10 percent of all investments in emerging markets and another 25 percent in commodities. With these guidelines, a portfolio manager must identify suitable commodities in which to invest. She must also research and select emerging markets in which to invest. As an emerging market grows, it may no longer qualify as an emerging market given the portfolio's definition. This creates a need to reclassify assets and find new investment opportunities.

Performing Transactions

Financial portfolio managers use the asset classifications they determine to make buying and selling decisions. Active portfolio management involves selling assets when they reach what appears to be a high price, and acquiring new ones with the ability to gain value. Managers, including private individuals who handle their own investments, initiate sale and purchase orders through brokers. They also account for investment income and expenses, all of which have tax implications for the investor.

Managing Risk

Another task for a portfolio manager involves managing risk, which is an inherent part of all investments. Each investor has a different risk tolerance; some can afford to take chances on investments, such as stocks, that have large upsides. Others need to invest more conservatively to protect their wealth. In each case, the portfolio manager's task is to account for the investor's risk tolerance while pursuing the most profitable investment products. Shifts in the market call for new research, strategies and projections.

Tracking a Time Horizon

Financial portfolios serve the needs of the investors who own them. Since each investor has a different timeline of needs, or a time horizon, a portfolio manager must take steps to match investment performance with plans for the future. Some investors need to safeguard their assets for use in the near future, as in the case of a new retiree who plans to use a portfolio to fund the next several decades of retirement. As an investor's time horizon changes, which happens naturally as time passes, a portfolio manager must make adjustments to how the portfolio is structured to match the investor's impending needs.

Photo Credits

  • chart background image by Stasys Eidiejus from Fotolia.com