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What Does a Portfolio Manager Do?


Portfolio managers are financial professionals who help their clients build wealth. The goal of a portfolio manager is to satisfy the investment goals of their clients. To do this, they must take into consideration a client’s time horizons, risk preferences, return expectations and market conditions. Let’s break down how a portfolio manager could help you grow money.

A financial advisor could help you put an investing plan together for your investment needs and goals.

What Is a Portfolio Manager?

A portfolio manager is a financial professional who helps choose and manage investment portfolios for both individual and institutional clients. A portfolio manager may be responsible for developing and managing an individual client’s investment portfolio. There are also many jobs for portfolio managers who manage the investment portfolios for corporations, hedge funds, mutual funds, pension funds and insurance companies. These professionals are called institutional portfolio managers. Regardless of which type of portfolio manager, they are tasked to build wealth for their clients.

To build wealth, the portfolio manager must get a good picture of what his or her client’s investment goals are. That requires getting to know the client and all the characteristics of an investment portfolio in which the client is interested. The portfolio manager always addresses the relationship between risk and return. In other words, they help the client understand that to have the opportunity to make a higher return on their portfolio, they have to accept a higher degree of risk.

What Does a Portfolio Manager Do?

SmartAsset: What Does a Portfolio Manager Do?

Portfolio managers are not salespeople. They focus on analyzing possible investments for a client, and using the information gathered and analyzed by the financial analysts available to them, to build the best portfolio possible. They focus heavily on asset allocation. Asset allocation refers to the mix of the type of assets in your portfolio. Generally, you have a mix of bonds, stock and cash in your portfolio plus perhaps some alternative investments. The job of the portfolio manager is to find the optimal mix of the assets in your portfolio to generate wealth while keeping your investment goals in mind.

Based on your individual preferences for risk, your time horizon and your investment goals, the portfolio manager will choose  appropriate securities for your portfolio for you to achieve your goals.

Usually, based on your age, there are certain risk levels that you should not exceed. Most portfolio managers change individual clients’ asset allocation as they age, For example, as you near retirement, they may gradually move your money into less risky securities. However, if you’re young and just starting out in the workforce, you can take on more risk to have a chance to earn a higher return because you have much more time to make up for any losses.

Diversification goes hand-in-hand with any asset allocation strategy. Portfolio managers will try to minimize your risk through diversification. Diversification is the process of spreading your portfolio around a group of diverse assets to insure against loss.

Crafting an Investment Policy Statement

In most cases, portfolio managers develop an investment policy statement for their clients with their cooperation. An investment policy statement is a document that states your needs and desire regarding your investment portfolio. You, along with your portfolio manager, determine your tolerance for risk and return expectations, your time horizon or when you will need your money and your investment goals.

You may have some specific input into your investment policy statement. Perhaps you don’t want to invest in a company or industry that doesn’t follow Environmental Protection Agency pollution guidelines or you don’t want to invest in companies that are not socially responsible. Maybe you don’t want to invest in the securities of companies located in a particular foreign country or you want to try investing in something like precious metals. These issues should all be in your investment policy statement.

Additional Responsibilities of a Portfolio Manager

A portfolio manager’s job doesn’t end with developing a client’s portfolio based on an investment policy statement. They meet regularly with investment policy experts, economists and researchers to keep abreast of the ever-changing market conditions. They have to read high-level, professional publications regularly to keep up with theory and practice. They keep up with the broad economic outlook, both foreign and domestic, and how it affects market conditions by tapping a host of publications and other experts. In this way, they can make the best possible asset allocation decisions for their client’s portfolios.

Portfolio managers are also responsible for their client’s portfolios observing regulatory issues, such as any changes to Securities and Exchange Commission (SEC) mandates, anti-fraud and anti-money laundering laws and other regulatory and legal issues affecting their client’s portfolios that hold domestic or international securities.

If any issues come up about regulations and securities laws, the portfolio manager has to adjust client portfolios to reflect any necessary changes.

Client Meetings and Rebalancing Portfolios

SmartAsset: What Does a Portfolio Manager Do?

For portfolio managers to meet their fiduciary requirements, they have to have a meeting with each of their clients at least once per year to determine if their investment goals have changed. Whether or not they have changed, the portfolio managers are responsible for rebalancing the clients’ asset allocations either back to what they were in the beginning or to new investment goals. Portfolio managers also have to share market conditions, economic news and news about the clients’ own individual investments.

Portfolio managers may have different styles of investing that they can share with their clients. For example, they may prefer active vs. passive investing (or vice versa). They might prefer momentum or contrarian investing or other investing styles. But, in the end, their fiduciary responsibility says that they have to do what is best for the client regardless of just following their own investing style. The key is that they must maximize their clients’ returns while minimizing their risks.

Bottom Line

Portfolio managers get a lot of education and experience to prepare themselves for a career in helping you get the most from your money. They may also have several professional designations with probably the chartered financial analyst being the most significant. Portfolio managers have at least a four-year college degree, generally in finance, and usually a graduate degree in the field. They often work as a financial analyst first before becoming a portfolio manager to get experience in researching market and security analysis. Check credentials before you hire a portfolio manager and you will be well-served.

Investing Tools for Beginners

  • A financial advisor can help you decide whether you could benefit from working with a portfolio manager. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
  • SmartAsset’s investment calculator helps you forecast the growth of your portfolio over time, based on your inputs. You can adjust the starting amount, additional contributions, rate of return, and timeframe to personalize the results.

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