What is portfolio management and why is it important?

What is Portfolio Management?

There is an incredible range of investment opportunities available to investors today. It seems you cannot watch TV or browse the internet for even five minutes without seeing an advertisement for the latest brokerage firm offering trades for under ten dollars and the tools and information you need to make money. They make it seem so easy. Anybody can do it, right?

Not anyone can do it nor should they

The truth is that portfolio management is complex and takes time and education to do properly. A multitude of questions first need to be answered before even attempting to decide which investments to choose for your portfolio. Among those things to consider are:

·Investment goals such as retirement or income

·Level of acceptable risk

·Amount you have to invest

·Period of investment

And once all those questions are answered, then comes the hard part: Which types of investments do you choose? Asset classes include:

·Real estate

·Stock equities


You can quickly get lost in a sea of opportunity and become confused as to which direction to take to meet your specific goals and objectives.

Portfolio Management

While some people take the time to educate themselves and over time gain the experience necessary to manage their own portfolios, many investors turn to professional portfolio managers for help with their investments. A professional portfolio manager can help you determine both your short -and long-term goals, assess the level of risk you are willing to accept, and help you choose the right investment vehicles based on your specific goals, objectives and risk tolerance.

The three key elements a professional can help you with are asset allocation, diversification, and rebalancing.

Asset allocation

A portfolio manager can help you decide which asset classes to invest in and how much to invest in each class. All asset classes do not move in tandem with each other and some are more volatile than others. Depending on your tolerance for risk, your investments may be weighted more heavily toward one class or another.


Diversification means spreading out your investments within each asset class you choose. It is difficult to consistently predict individual winners and losers within an asset class, even for professionals. Diversification spreads the risk and reward out among subsectors of an asset class creating broader exposure and hopefully capturing the success of the entire asset class over time.


Throughout the year a portfolio manager will move investments around to capitalize on opportunities such as extended stock market rallies or rising bond yields. This may cause an investor’s portfolio allocation to move away from their original allocation.

Rebalancing occurs when your portfolio manager sells certain assets and purchases others to realign your portfolio with your overall tolerance for risk and investment goals.

This brief article merely touches on the complexity of portfolio management. In reality, professionals take years honing their education and skills to be able to effectively manage the wealth of their clients. While it is not impossible to manage your own portfolio, the rewards are often worth the costs of having your portfolio managed professionally.

What are Index Funds?

An index, for example, the S&P 500, measures the performance of stocks across different industries. While indexes have different criteria for which stocks are included, the end result is an average measure of how stocks in that index sector are performing. The S&P 500 measures the 500 largest companies listed on the NYSE or NASDAQ, giving us an overview view of some of the most well known companies.

An index fund is a type of mutual fund designed to mimic an index, however the actual composition of the fund may be different then the index. The index may be a broad market index or may be concentrated in one sector of the market such as health care or technology.

Advantages Of Investing In Index Funds


  • Range of Market Exposure 

An index fund gives you the advantage of a diversified portfolio that spreads the risk among multiple companies. Some companies may do very well, a handful more could do moderately, and a couple could perform poorly.

  • Low Fees 

Index funds tend to have lower fees than other investment options because they are often passively managed instead of actively managed. We will look more at passively managed investments in a moment, but one reason they may be attractive is that they take less work to manage, meaning they may have lower costs and fees.

  • Low Tax (Low Turnover)

Holding investments for longer than one year may give you a tax advantage compared to holding an investment for less than 12 months. Index funds tend to have a lower turnover, which means they are not constantly buying and selling holdings. At the end of the day, this may result in a more stable asset with less tax liability.

Index Funds and the Greater Investment Strategy

Index and other types of mutual funds are a common asset class for investors seeking a diversified portfolio to put their money where they may earn a higher return than placing it into a savings account. Depending on how aggressive or conservative the investor want to be, funds may make up a larger or smaller percentage of a portfolio.

Passive Vs Active Management

An actively-managed investment is one where a financial professional, like a fund manager, is more heavily involved in running the investments. The fund manager spends more time evaluating the holdings and deciding whether it is time to buy or sell the stock. In contrast, a passively-managed investment is more hands off.

Conservative Vs Aggressive Investments 

The goal of an index is to recreate the market average, not to seek the gamble of incredible returns.

A more aggressive investment is looking in a specific place to earn a return. For example, a fund that invests only in small cap companies in the tech sector could make the right choices and end up holding the next major company at just the moment when it skyrockets in value. But, there is also the chance that the wrong selections could bring the investment crashing down.

The advantages of the index fund make it an attractive asset for investors who either do not have a tolerance for losing money in more aggressive investments or for those who want to strike balance between the two strategies.

Credit Score: Hate it or Love it, Be sure to Guard it

The Importance of your Credit Score 

Credit scores affect more than just your ability to open a credit card or take out a loan. In some cases, a poor credit score can affect your ability to get a job or your relationship with your spouse. If credit scores can have such a big impact on our lives, it is important to understand where it comes from and how to have the best score possible.  

A credit score is a number that is calculated based on a system that translates your credit history into a statistic. It is used by lenders to guess whether you will be likely to pay back a loan. The number itself comes from the credit bureau compiling the information. The three largest credit bureaus are TransUnion, Experian, and Equifax. These agencies compile information about you to assemble your individual credit score.  

Though it is easy to dismiss a credit score as just a number, your credit score affects the interest rate at which you will repay a car loan or mortgage. Moreover, according to the Federal Reserve, it can also predict the longevity of your relationships. It is not just any number, so it is essential that we treat it that way.

Your credit history creates your credit score. Your history can include credit cards, loans, and mortgages, though the most common source is a credit card. The easiest way to get a credit score is to be included on someone else's credit card or start using one yourself. However, though it can be easy to start generating credit, the goal is to maintain, improve, and guard your score over time.

Choose your credit card carefully

Know your spending habits before you choose a credit card. For example, if you are always traveling, you may want to find a card that does not charge foreign fees. Pay attention to the annual fees, interest rates, and any other spending requirements of the card. Though choosing a card does not affect your credit score directly, choosing a card that fits your lifestyle can be a strategic approach to managing monthly payments that will directly affect your score.

Pay On-time

A big part of guarding your credit includes paying on-time. An easy way to ensure you are paying on-time is to set up an automatic payment on your account. The automatic setup will send the payment on your behalf. Also, another part of paying on-time is not spending more than you have. If you spend more than you earn, it will be challenging to pay on-time.

Use Less

Utilizing less of your credit line shows that you are using your credit responsibly. The rule of thumb is to utilize 10-30% of your credit line. This utilization may boost your credit score.

Credit History

Credit history is a factor of time. Having a solid credit history over several years may increase your credit score. It is about consistency over time. When it comes to your credit history, the longer you hold a credit card and make on time payments, the better. Which means the earlier you start, the better.\ 

Credit Score Requests

If you request your credit score too many times from a credit bureau, it may affect your credit score negatively. Asking for your credit score as little as 2-3 times may affect your credit score and it will remain on your history for about two years. Today, many credit card companies provide a credit score gauge on your account. With this tool, you can monitor your credit score.

Your credit score is more than just a number. A good credit score is a route to, potentially, save thousands of dollars. It is a significant number and is best to be guarded as such.

5 Reasons Managing Your Portfolio During Retirement is Challenging

We struggle to save for retirement. A recent study found over 20% of Americans have not even started saving for retirement, while nearly one third had not been able to save more than $5000. 

Many people are struggling at step one: setting aside actual money or having money to set aside. But even the most diligent investor can find themselves doubting and worrying about whether they have saved enough money to sustain a comfortable lifestyle for years to come.

If it is difficult saving money and managing your portfolio before you retire, then investment management after you retire may be more difficult.  Before retirement, you add money to your investments. The biggest concern you have is determining where to invest the money you add. No one would claim that task is easy, but it is nothing compared to the moment when you stop adding money regularly and begin to withdraw it instead.

The difficulty lies in the unknown future and how your strategy will uphold the test of time.

1. Life Expectancy 

No one wants to spend a lot of time thinking about their impending death. Saving money for an unknowable date is not easy because no one really knows how long they will live. Retirement planning always involves an estimate somewhere, whether it is how long you will live, how long your spouse will live, or how long any dependents may be relying on your income. It might be a pleasant surprise to live longer than you plan, but it will not be as enjoyable if you potentially outlive your retirement investments. One way to minimize this chance is to stay conservative in your estimates of how long you and your spouse may live.

2. Withdrawal/Spending Rates 

How much money will you need to spend each month to maintain your lifestyle in retirement? What withdrawal rate will allow you to maximize your investments after they become your main source of income? Conservative estimates vary between simple rules such as spending 4% of assets in a year or more complicated rules which consider market performance. It may be complicated enough to exercise the discipline needed to stay under your spending limits. Withdrawing from your investments may make it more difficult to maximize the return on your investments. This balance between earning and spending money can make managing your portfolio during retirement challenges.

3. Risk and Market Cycles

We know the market usually moves in cycles and we know keeping a cool head is key to retirement investing success. But that does not change the fact that it is psychologically more difficult to stay conservative when the market is booming and to properly cut our expenses to reflect losses when the markets are retreating. It is natural for people to plan to make adjustments later, at some other ill-defined point in time. After all, that is the reason so many Americans are dragging their feet about saving money in the first place. But during retirement, it is important to have the discipline needed to stay the course.

4. Liquidation Strategies

Planning which assets to liquidate may have a ripple effect on the rest of your retirement, for better or worse. The main goal is to first liquidate the assets that have the lowest potential long-term return. This leaves the assets with higher potential returns to continue to appreciate, while you make withdrawals from the asset with lower potential returns. One way to minimize the risk is to liquidate your assets as evenly as possible, withdrawing money from each asset class in proportion to the others. Spreading the money out among assets classes may lower the risk in the long run. 

5. Pending SS Meltdown

Most people agree that Social Security may be heading towards some major problems, and our political system seems perpetually gridlocked to do anything about it one way or the other. If and when the Social Security fund dips below one year’s worth of payments, one possible solution will be for outgoing payments to be decreased to a level that matches the amount of money expected to come into the fund through payments. It is hard to imagine legislation passing that increases Social Security taxes, so the most likely result is a potential decrease in Social Security payments. That could happen through political action, or it could happen by necessity when the fund no longer has assets that are greater than its liabilities.

This may sound like an overly negative topic, but the only thing more unsettling about retirement planning is not planning for retirement at all. It is critical that you understand the challenges facing you as you plan your retirement and the potential obstacles lying ahead for those in retirement now.

New Study Finds Millennials Lack Confidence In Their Investment Knowledge

A study co-sponsored by CFA Institute and FINRA examined the relationship between Millennials and investing. For anyone keeping abreast of the conversation surrounding Millennials and financial literacy, their results might be something of a surprise.

Millennials are commonly explained as tech savvy, informed individuals who are confident making their own financial decisions in an increasingly tech-integrated approach. The generation has been widely credited for the rising robo-advisor trend, among other innovations in investments. It has long been said that Millennials struggle to save due to burdens of large debt and stagnant wages. While these are not to be dismissed, the research by the CFA and FINRA < > reported that 39% of Millennials who are not currently investing say that lack of knowledge is their biggest barrier.

The myth-busting does not stop there. The study also found that only 21% of Millennials are confident about financial decisions. That means 79% of Millennials doubt their financial decisions, far from the overconfident and impatient persona they are so often made to wear.

Instead of embracing automated solutions like robo-advisors, 58% of Millennials would prefer to work with a financial professional in-person to make investment decisions. This is a similar number found in older generations, suggesting that robo-advisors may not live up to their current trendy projections. Conventional thinking suggests that Millennials have a mistrust of financial professionals and products. However, this study found that 72% of Millennials who work with a financial professional are satisfied with the experience and that only a small percentage of Millennials mistrusted these professionals.

Millennials are sometimes described as having a sense of entitlement and an impatience for the sort of long-term wealth-building necessary for a comfortable retirement. This research suggests that in truth, Millennials have smaller or similar financial goals than their parents and grandparents had. Instead of impatience, lack of investment literacy is the primary barrier they face when it comes to investing.

Arguably, the most important myth to debunk about Millennials is that making generalizations about Millennials is difficult. Rather than being a group of people with similar worldviews, Millennials are a diverse generation with a wide variety of views and attitudes, particularly about investing.