This document outlines the steps for portfolio planning and management: 1) Assess current assets, liabilities, goals and risk tolerance. Define short- and long-term financial goals. 2) Establish an investment objective and risk-return profile. Determine the appropriate level of risk and expected returns. Set benchmarks. 3) Determine an asset allocation strategy across different asset classes based on the risk-return profile and goals. Adjust as goals change over time.

1. Portfolio Management
UNIT III

2. Portfolio Analysis
Planning
Introduction:
• In order to plan for the future, first take a hard look at the
present, sifting through all current assets, investments, and
any debt; then, define your financial goals for the short- and
long-term.
• Figure out how much risk and volatility you're willing to take
on, and what returns you want to generate; with a risk-return
profile established, benchmark can be set in place to track
portfolio performance.

3. • With a risk-return profile in place, next create an asset
allocation strategy that is both diversified and structured
for maximum returns; adjust the strategy to account for big
life changes, like buying a home or retiring.
• Choose whether you want active management, which might
include professionally-managed mutual funds, or passive
management, which might include ETFs (Exchange Traded
Fund) that track specific indexes.
• Once a portfolio is in place, it's important to monitor the
investment and ideally reassess goals annually, making
changes as needed.

4. Step by Step Portfolio Planning Process
Step 1: Assess the Current Situation
• Planning for the future requires having a clear
understanding of an investor’s current situation in
relation to where they want to be.
• That requires a thorough assessment of current assets,
liabilities, cash flow and investments in light of the
investor's most important goals.
• Goals need to be clearly defined and quantified so
that the assessment can identify any gaps between the
current investment strategy and the stated goals.
• This step needs to include a frank discussion about the
investor’s values, beliefs, and priorities, all of which
set the course for developing an investment strategy.

5. Step 2: Establish Investment Objectives
• Establishing investment objectives centers on identifying the
investor’s risk-return profile.
• Determining how much risk an investor is willing and able to
assume, and how much volatility the investor can withstand, is
key to formulating a portfolio strategy that can deliver the
required returns with an acceptable level of risk.
• Once an acceptable risk-return profile is developed,
benchmarks can be established for tracking the portfolio’s
performance.
• Tracking the portfolio’s performance against benchmarks
allows smaller adjustments to be made along the way.

6. Step 3: Determine Asset Allocation
• Using the risk-return profile, an investor can develop an asset
allocation strategy. Selecting from various asset classes and
investment options, the investor can allocate assets in a way
that achieves optimum diversification while targeting the
expected returns.
• The investor can also assign percentages to various asset
classes, including stocks, bonds, cash and alternative
investments, based on an acceptable range of volatility for the
portfolio.
• The asset allocation strategy is based on a snapshot of the
investor’s current situation and goals and is usually adjusted
as life changes occur.
• For example, the closer an investor gets to his or her
retirement target date, the more the allocation may change to
reflect less tolerance for volatility and risk.

7. Step 4: Select Investment Options
• Individual investments are selected based on the parameters of
the asset allocation strategy. The specific investment type
selected depends in large part on the investor’s preference
for active or passive management.
• An actively managed portfolio might include individual
stocks and bonds if there are sufficient assets to achieve
optimum diversification.
• Smaller portfolios can achieve the proper diversification
through professionally managed funds, such as mutual
funds or with exchange-traded funds.
• An investor might construct a passively managed portfolio
with index funds selected from the various asset classes and
economic sectors.

8. Step 5: Monitor, Measure and Rebalance
• After implementing a portfolio plan, the management process
begins. This includes monitoring the investments and
measuring the portfolio’s performance relative to the
benchmarks.
• It is necessary to report investment performance at regular
intervals, typically quarterly, and to review the portfolio plan
annually.
• Once a year, the investor’s situation and goals get a review to
determine if there have been any significant changes. The
portfolio review then determines if the allocation is still on
target to track the investor’s risk-reward profile.
• If it is not, then the portfolio can be rebalanced, selling
investments that have reached their targets, and buying
investments that offer greater upside potential.

9. Conclusion
• When investing for lifelong goals, the portfolio planning
process never stops.
• As investors move through their life stages, changes may
occur, such as job changes, births, divorce, deaths or shrinking
time horizons, which may require adjustments to their goals,
risk-reward profiles or asset allocations.
• As changes occur, or as market or economic conditions dictate,
the portfolio planning process begins a new, following each of
the five steps to ensure that the right investment strategy is
in place.