Investment Advice

A simple guide to understanding portfolio management

Damian McVilly
17 March 2022
6 min read

17 March 2022

Most people strive to create and build wealth for financial security – whether it means always being able to meet their basic needs, leaving a source of income for your children, or having enough to live on after retirement.

If it was a matter of choice, most people would choose the least risky way to achieve these goals. However, wealth management isn't risk free and without sound portfolio management, most people would have a difficult time achieving financial security.

Portfolio management is designed to help investors manage their wealth and investments while building risk tolerance. You can maximise returns for a particular risk or minimise risk for a particular return.

Let’s delve into the intricacies of portfolio management to help you understand how it works.

What is portfolio management?

A portfolio is a set of assets that are owned by a person or entity. Portfolio management refers to building and managing these assets to meet the goals and objectives of the owner of the assets.

Think of it like not putting all your eggs in one basket. Instead of having all your wealth held up in one source, you spread it around, creating an assorted portfolio of investments, such as stocks, property, bonds and cash.

Portfolio management aims to manage risk and returns by adjusting the variety and amount of investments – since it is highly unlikely that all of them will be impacted the same way by any of the factors that cause the value of investments to rise or fall.

It is available and beneficial for all kinds of investors because they don't have the time to do it themselves or lack the expertise needed to do it well.

Approaches to portfolio management

There are two main methods for portfolio management:

1. Active Management

Active portfolio management is a proactive approach to managing portfolios. The goal of the manager is to buy and sell stocks to outperform an investment benchmark.

Actively managed investments typically have a team of managers –manager, co-manager and other managers –who make investment decisions. For it to succeed, these managers must be skilled in asset management, and keep themselves abreast of research and market forecasts.

2. Passive Management

Passive portfolio management takes a more reactive approach. It is also called index fund management and attempts to mirror the return of a particular market index or benchmark.

Key elements of portfolio management

To get a deeper understanding of how portfolio management works, here are the key elements involved in the process:

Asset Allocation

Asset allocation is about how you divide your portfolio among different investments. It depends heavily on how risk-tolerant you are.

As a general rule-of-thumb, you should take bigger risks when you're just starting to invest, then transition to less risky investments as you approach your financial goals.

For example, a Gen-Z investor has more time before they retire than a Gen-X investor, which translates into a bigger window for taking risks as they have a longer period to recover from adverse life events or market downturns As Gen –X is approaching pre retiree stage, they may do better with more conservative investments that present less risk as they have less time to recover from market corrections.


Diversification refers to diversifying your investments –spreading them out across different companies, locations, and industries. This way, if an economy-altering event happens, causing some sectors to sink, your whole portfolio does not go down.


Asset allocation should meet two goals: maximising returns and minimising risks. Without rebalancing, portfolios tend to shift gradually from bonds to stock investments.

Portfolio managers use rebalancing to restore a portfolio to its initial target allocation and maintain balance within their accounts.

Portfolio managers buy and sell assets to maintain a favourable investing risk. It not only helps keep investors on the right path to meeting their goals, it can also enhance their portfolio returns when they rebalance multiple asset classes with similar long-term expected returns.

Tax Minimisation

Taxes greatly affect your returns. Tax minimisation entails coming up with strategies to reduce the amount of taxes you pay. These strategies help to offset or reduce current taxes and any other taxes down the road.

Four things you need to know about portfolio management

Proper portfolio management requires that you put these things in mind:

1. It's not a set and forget it strategy

You need to constantly review the portfolio, asset allocations and measure them against the investor's goals.

2. 90% of your returns come from asset allocation

Your investments are not as nearly important as how they are allocated. If asset allocation is done incorrectly, you have very slim chances of making any returns.

3. It requires constant management and monitoring

Every investment portfolio has a target. Without constant management and monitoring, it's easy to drift off the target and miss the long-term goals.

4. Flexibility

Each goal should be considered and targeted appropriately to the correct lifecycle stage for the client.

In conclusion

Your portfolio can only perform as well as it is managed. From the moment you decide to invest, you need to have an expert to help you manage it to avoid costly mistakes.

Portfolio management at Findex is handled by a team of investment specialists overseen by an investment committee. We focus on the little and big details that make or break returns on portfolio management to ensure we make the right decisions.

With $28bn of assets under administration and one of the largest Managed Discretionary Accounts (MDA) in Australia, the Findex Investment team has consistently delivered returns for our clients that have outperformed the benchmark through Findex MDA portfolios.

The outstanding performance of Findex MDA portfolios is grounded in our unique depth of expertise and rigour around portfolio construction and diversification to help ensure downside protection.

When you invest with Findex, you engage with specialist teams, who enhance the client value proposition at every step of your wealth journey. We provide you with an end-to-end wealth management and investment solution that helps maximise the likelihood of achieving your goals with the minimum amount of acceptable risk for your individual circumstances.

Findex is all about working hard to help meet our clients' goals. We understand how quickly the market can change, and little effects that can take longer than expected, causing investments to lose their value. For expert and trustworthy management of your portfolio, contact us today.


Author: Damian McVilly | Senior Partner

Damian has over 21 years' experience and provides advice in retirement planning, superannuation and share trading. His exceptional client service standards have previously been referred to in the national financial planning magazine 'Smart Investor'. Damian also specialises in SMSF Limited Recourse Borrowing Arrangements (LRBA). Damian works across four offices Torquay, Colac, Geelong and Melbourne.