What is Portfolio Planning?

What is Portfolio Planning?

Portfolio planning is the process of strategizing the construction of an investment portfolio. The investment portfolio should be encompassing of the investor’s risk tolerance, investment time horizon, and expected return of the portfolio.

Portfolio planning is the process of strategizing the construction of an investment portfolio.

Investment managers can develop an understanding of the investor’s risk tolerance through a written investment policy statement.

Many investors are restricted in the types of securities they can hold in their portfolio – examples include real estate investment trusts, corporations, and qualified investment accounts.

What are the steps in planning a portfolio?

Portfolio planning can be used by loads of different teams in about a million-and-one different contexts. But no matter what your business does or the type of portfolio you’re trying to manage, the portfolio planning process generally includes 5 steps.

1. Assess your situation

Before you can start planning for your organization’s future, you’ve got to start by taking a long, hard look at your current situation.

If you’re looking at a financial portfolio, that would mean looking at all of your existing assets, liabilities, and investments to try and figure out what you’ve already got.

Outside of the investment bubble, this step revolves on looking at all the projects or programs your business is already involved in.

2. Create goals

After you’ve taken stock of what you’ve already got, it’s time to sit down and come up with realistic goals around where you want your portfolio to take you.

portfolio goals should follow the SMART framework

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For example, let’s say you own a construction business. You might look at your existing portfolio of building projects and decide that by the end of 2025, you want your company to be the state’s top housing contractor.

In the context of finance, this step would be more about looking at different benchmarks to decide what sort of return on investment (ROI) you’d like to achieve through your assets.

3. Come up with a strategy

The next step in portfolio planning is to determine a strategy you’d like to apply towards selecting and maintaining items in your portfolio.

In the wonderful world of investment strategy, you’d call this “asset allocation”. Asset allocation is the process of deciding what mix of asset classes you’d like to be in your portfolio so that it can match your tolerance for risk.

But again, this rule applies to any type of portfolio. At the end of the day, no matter what’s in your portfolio, you’re going to have to come up with a strategy around how many projects, what type of projects, and the amount of risk you’re willing to take on to meet your company’s goals.

4. Choose wisely

After you’ve developed an asset allocation strategy, it’s time to choose what you should add to your portfolio.

Take a look at your goals and your allocation strategy. Then, think and choose carefully so that you can take on projects, product lines, or assets that fit in with those goals and your strategy.

5. Measure, measure, measure

Your organization, its needs and its goals are going to change over time. You’ve just got to make sure that your portfolio changes along with those needs and goals.