Top 5 Portfolio Management Techniques - IncomeNonstop %


Well, really it depends on your goals. As with anything in portfolio management. The journey depends upon the destination. And so, the first thing you want to do as always. Fall back on your financial planning. What does your financial planning say? That you're trying to accomplish. What is your goal? What is your destination? That's what's going to drive the technique. You use in order to get there.


  • Conservative
  • Moderate
  • Aggressive
  • Income-oriented
  • Tax efficient
Let's take a closer look at each of those five now in order starting with Conservative. When would you use a conservative portfolio management tactic? Maybe you've got a short-term time horizon? Or this may be college savings? Your child is in high school, and you're looking at paying for college. You want to be conservative.

Portfolio Management

Might be you want to focus on principal preservation. Because you can't afford a large loss. Again the college example. Maybe this is a home purchase? Maybe you're buying a home in the next couple of years? You don't want to put your principle at risk. We'll look more at the techniques you might use to get to a conservative strategy. But again, time horizon and risk tolerance are going to play a large role in determining whether or not this is the right approach.

So if you're not conservative, what are you? Maybe you're an intermediate approach? An intermediate approach, as the name implies. It's your mix of aggressive and conservative. Somewhere in the middle. Here you're focusing on some growth, yeah.

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But also some principal preservation. This is your moderate approach. You're moderate risk tolerance. And then you've got your growth approach. This is more aggressive. This is when you've got a long-term time horizon. You're willing to tolerate some fluctuations. You're willing to see your portfolio bounce around up and down with the hopes that in the long run.

It will generate higher returns. Importantly, this isn't the portfolio management approach of swinging for the fences. Or trying to hit the proverbial home run usually isn't really a portfolio management technique. It's a gamble. What we're talking about here is managing risk. Taking a little bit more risk than average in order to generate higher returns. But doing it in a prudent manner, taking risks that are well rewarded and still within a diversified portfolio.

Then we have the income-oriented approach this is where you're not so worried about future growth. You're worried more about putting dollars in your pockets. Money you can spend in your bank account every day from your portfolio. Maybe this is in retirement. Maybe this is just cash flow you need to live off of. And then, while we're talking about income.

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  • Total return approach
  • Dividends and Interest approach

DIVIDENDS AND INTERESTportfolio management

That's when you're just clipping the proverbial coupons from your portfolio. So, your portfolio is kicking off cash in the form of dividends interest payments and the like. You spend those you don't touch the principal.


That's where not only you are collecting coupons in the form of dividends and interest. You might be selling some securities, harvesting some gains. Choosing how to generate that cash flow from your portfolio. For many people that total return approach is a more reasonable approach to follow. Dividends and interest only, there are some flaws to that.

Portfolio ManagementFor some people it works, but for many that total return approach to generating income is the way to go. And then the final portfolio management approach, tax efficient. So this is where your primary goal isn't just returns. Its returns net of taxes. Now to be fair, taxes should be a consideration in almost any of your portfolio management approaches. Assuming you have some assets in taxable accounts. But here this is the main focus. Maybe you're in a high tax bracket.

Maybe you have other sources of income that are going to push your adjusted gross income up. And you want to make sure that what's coming out of your portfolio is tax efficient. Maybe here you're focusing on qualified dividends or long-term capital gains for tax efficiency. Maybe you're focusing on municipal bonds for tax efficiency. Those are the main portfolio techniques. Let's talk about the building blocks.



And here you're talking about, really, two main types of assets. People talk about all different asset classes, asset types. I focus on two, I focus on growth, and I focus on safety. And when I talk about growth, these are your assets that. As the name implies, are intended to grow. They're intended to generate higher returns over time. With those higher returns does come some higher levels of volatility, of course, it’s a trade off like everything. You don't get something for nothing when it comes to investing.


Well, I might look at things like:
  • Stocks
  • Natural resources
  • Real estate
  • Alternative investments
As asset classes designed to generate more growth from your portfolio. And then in addition to growth. You have your safe assets. These are the assets that are designed to preserve your principal. Not fluctuate as much. Perhaps provide a solid foundation on which your growth assets can rest. These are things like cash perhaps.

And these are things like high-quality bonds. Notice that word I use, “high-quality” bonds: aggressive bonds. Your high yield bonds, your emerging market bonds, your preferred stocks. Those should be part of the aggressive or the growth pool. When you're focusing on safety in the bond market. You want those shorter and intermediate-term high-quality bonds.

Because that's really where that safety and that stability is coming from. How you choose to combine these growth assets and these safe assets will. To a large degree, depend on which of the portfolio management techniques you're focusing on. If you're focusing on a growth portfolio. You're going to want obviously more of the growth assets, less of the safe assets. If you're focusing on the conservative approach to portfolio management.

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You're going to want more of the safe assets. Less of the growth assets of course. And then in the tax efficient or the income-oriented. It's going to be a combination of both and determining whether or not those assets will help you accomplish the additional goals of tax efficiency and income generation. Depending on which the portfolio management techniques you're going for.

Once you've determine what mix of growth and safety you want. Of course, its how you do then implemented from a vehicle perspective? But importantly of course there are multiple approaches some will use actively managed mutual funds. Some will use index mutual funds. Some will use our preferred approach. Which is an institutional approach of mutual funds and exchange-traded funds designed to capture market returns while over weighting factors that have proven to generate higher returns in the long run.

Some people buy individual securities. That can work for some. But that vehicle selection comes after determining your mix of growth and preservation. And then of course as you put this all together. You need to determine which of the portfolio management techniques is right for you? And that circles us all back to the financial planning.

WHAT ARE YOUR GOALS?portfolio management

Importantly, what is your required rate of return? When you ran your cash flows when you did your financial planning, what rate of return do you need to meet your financial goals? Because to a large degree that's the number that's going to determine whether you want an aggressive portfolio. A conservative portfolio, an income portfolio, etc.

And then, where do your assets lie? What kind of tax bracket are you in today? And what kind of tax bracket are you going to be in the future. Based on your tax projections and your tax planning? Because that's going to determine whether or not that tax-efficient portfolio is the one to focus on. As you can see, and as always, investing is a very important discipline, but its one piece of the larger pie. Investing takes place within the context of your financial planning.

Because without the financial planning, you're not going to know which portfolio management technique is appropriate for you. So, in order, first you do your financial planning that leads you to which portfolio management technique is appropriate for you. Whether it's conservative, intermediate, aggressive, whether it's tax efficient, or income generation. You then figure out based upon that what mix of safe and growth assets is appropriate for you? What proportions? For most people, it’s going to be some mix of both. And then finally, what vehicles will help you implement the strategies you've chosen?

So there you have it, 5 MAIN TYPES OF PORTFOLIO MANAGEMENT TECHNIQUE ranging from conservative to growth, incorporating perhaps tax efficiency or income generation as a goal, and then determining what mix of growth and safe assets is appropriate to get you there.

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