Steps to successful portfolio management (Part 2)

Step Four - Portfolio Monitoring/Reporting

Establishing a portfolio and putting each of the investment specialists in place is only the beginning. Your portfolio has to be continually monitored to ensure that it always meets your objectives. Some of the monitoring that must be conducted on a regular basis is:

• Portfolio composition analysis focused on security categorization
- asset size, sector/geographic concentration
• Portfolio risk valuation
- standard deviation, downside volatility, correlation, etc.
• Cost analysis among sub-advisors
- examine trading fees and impact to portfolio performance
• Study relative performance among peers and benchmarks
- published, measurable, appropriate, equality - cost shifting versus market appreciation, stock selection, turnover rate, asset mix
• Mandate Review
- market capitalization, buy/sell discipline, geographic adherence
• Portfolio design and construction audit with a pension consultant
• Reporting on quarterly basis

Portfolio monitoring is a critical part of the portfolio management process and ignoring it could lead to significant difficulties.

Step Five - Investment Specialist Replacement Process

Regardless of how effective your investment specialist selection process is, it may be necessary to replace a specialist from time to time. When establishing your portfolio, you need to ensure that you have a methodology to not only select a specialist, but also to replace one. Some of the reasons for replacing an investment specialist are:

• Manager mandate drift (style, asset class, geography)
• Relative performance issues (consistent sub-performance versus peers)
• Regulatory issues
• Corporate capital (ownership change)
• Intellectual capital (personnel change)
• Better investment specialist comes available

Conclusion

Portfolio management is not a part time job. It requires access to a great deal of information on a regular basis, expertise, and most importantly, objectivity and discipline. Our team employs the services of a portfolio management service, which conducts the on-going stages on behalf of our firm and clients with great success.

These five steps will not automatically assure you of long-term success since investing is inherently risky by nature. However, by following them you should stay on the right path to achieving your financial dreams.