More than just a spreadsheet: 5 key portfolio management tips for 2023

When it comes to portfolios, stock selection tends to grab the most attention. But you shouldn’t neglect your portfolio management, either.

If you’re planning to be a serious, long-term investor, you can’t afford to neglect portfolio management.

But where do you start? And how do you sustain it after the initial thrill of stock selection has worn off?

Today, we take a look at some of the key considerations at play when it comes to portfolio management.

In its simplest terms, your plan should outline:

• Your investment goals i.e. your purpose for investing
• The resources you currently have available
• The assets you plan to invest in
• The investment strategies that align with your overall goals.

From this basis, you can start considering the timeframe to achieve your desired outcome, as well as your tolerance for risk.

Of course, you don’t have to do all of this on your own, either. Services allow you to consult with expert advisers that are able to assist you with your planning and strategies.

2. Determine your risk profile

Investors tend to fall into two main categories – “risk averse” and “risk tolerant”.

Of course, there are a whole spectrum of risk categories in between – but “risk averse” and “risk tolerant” can serve as jumping-off points for determining where you sit.

Risk averse investors typically tweak their portfolio to focus on large companies and income-based stocks. Growth potential is usually brought in via established mid-sized companies that show signs for future growth.

Risk tolerant investors tend to focus on small to midsize companies. Large companies and income stocks may also be found in their portfolio to offset risk. However, it’s important to remember that large and income stocks can also see growth over a longer-term period too.

It’s important to remember that neither approach is right or wrong. Where you fall on the spectrum will be driven by a variety of factors, including your personality type, your goals, the timeframe you have in place and prior experience investing.

Using tools – such as investment algorithms – throughout this process can allow you to identify the potential profitability of stocks, too.

Having access to tools like this can also assist you in your own personal risk calibration and with making informed decisions over a long-term period.
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3. Determine your preferred investment methodology

As an investor, there are two main ways to carry out company analysis to pick stocks.

The top-down approach involves looking at the macroeconomic picture – market trends, prominent industries, political developments, etc – as a whole. This can allow you to identify potentially profitable sectors that may outperform the wider market.

The bottom-up approach instead looks at companies that are the “best of the best”, then differentiating according to industry later.

Investors will then select an investment methodology to apply to their purchasing and portfolio maintenance. Some of the main styles include:

• Value – a focus on the current value of the stock
• Growth – a focus on future growth
• Neutral – an active strategy where you go both long and short
• Growth at a Reasonable Price (GARP) – Gradual growth over time
• Index – a focus on emulating the wider the index performance

Each of these has its own strengths and weaknesses. None should be seen as individually definitive.

Rather, they tie back to considerations like your comfort with risk, investment goals and sectors of interest.

However, when used effectively, they can assist in identifying opportunities in the market. For example, healthy companies that are profitable but currently undervalued can serve as potential long-term investments.

4. Spread the risk

Any long-term investor knows that diversification is key. But what does this look like in practical terms?

Each long-term investor has their own individual quirks. They will also have specific focuses depending on how aggressively they’re seeking to grow vs looking to generate long-term income.

However, there are a few core principles we can put in place.

For example, having more than 50% of your portfolio in any one sector would be considered high risk. This can lead to serious exposure long-term, particularly if there’s a market downturn.

More conservative investors would generally hold less than 5-10% in any one sector.

You also need to keep the number of stocks you own to a manageable number – typically 20-30 different stocks. If you can’t reasonably keep track of the market developments for each of them, how can you expect to be able to make informed decisions?

Additionally, don’t overlook the possibilities that diversifying across company sizes can offer.
Though smaller companies can present additional risk, they also have the potential to offer above-average returns.

5. Ongoing maintenance

Portfolio management is an ongoing process.

Depending on your approach, it can be a good idea to rebalance your portfolio on a regular basis.

This allows you to weed out underperforming stocks, identify areas of weakness, look at strong performers and adjust your strategy accordingly.

It’s also something to be done as your circumstances change. For example, you might shift to a portfolio that’s more income-oriented as you enter retirement.

However, throughout the lifespan of your investments, it’s key to have the right toolset in place. Investment services can be invaluable in having access to the right data and advice to make key decisions.

To find out more about trading stocks, make sure you check out our step-by-step guide.

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