Chapter 15 - Portfolio Management : Introduction

Portfolio risk & return

We have, so far, gained clarity about the various aspects of investment and stock market behaviour. However, taking into account an old proverb that says, 'It is not wise to put all your eggs in one basket', we need to learn the techniques of diversification of our investments to reduce the risk. That is because every type of investment and its subjects have different levels of risk and returns involved. So it is always better to have a diversified investment strategy to minimize these risks. And let us build a portfolio based on your risk-taking aptitude and investment goals. A portfolio is the total mix of all the assets held by an individual, including financial assets like bank deposits, shares, debentures and bonds as well as non-financial assets like land and housing properties. Some of these assets may be inherited while others may be acquired. As the assets are transferable, it is possible for an individual to choose his or her mix of assets by acquiring fresh assets and selling off some of his current holdings. Portfolio management basically means the designing of a prudent mix of these assets in line with the objectives of the individual.