Managing a stock portfolio requires a comprehensive, multiple-step approach that includes asset allocation, diversification and rebalancing, according to the U.S. Securities and Exchange Commission. The SEC explains that these strategies reduce investment risk and increase the probability of success.Continue Reading
Proper stock-portfolio management begins with asset allocation, according to the SEC. The goal of asset allocation is to invest in a mixture of assets that have a high enough probability of financial success to justify the financial risk.
Diversification is a risk-management technique that focuses on minimizing risk by creating a portfolio with a variety of investments, according to Investopedia. This technique is based on the idea that diverse investments lead to greater financial returns and less risk to the investor. The SEC explains that some investors practice diversification by investing in different categories of one type of asset, while others spread their investments across different types of assets.
Investors practice rebalancing by buying and selling large segments of a portfolio in order to reset the significance of each asset class, according to Investopedia. The SEC describes rebalancing as a way to keep an investment portfolio in line with its original goals, and to maintain the ideal of buying high and selling low.Learn more about Investing