Investment Terms: Portfolio Management (Part 1)

There are a lot of investment terms you will need to familiarize yourself with when it comes to investing world. Here are some of those terms that you’ll most likely encounter when you start dealing with portfolio management:

Asset Allocation
This is an approach to managing capital which involves setting parameters for different asset classes. These asset classes include: equities (ownership, or stocks), fixed-income (bonds), real estate, cash, or commodities (gold, silver, etc.)

Asset allocation is the thorough implementation of your chosen investment strategy.tries to find the balance in risk versus reward through the adjustment of the percentage of each asset in an investment portfolio. The adjustments made will depend on your risk tolerance, goals, and investment time frame.

Asset Management Company (AMC)
This company is a business that actually invests capital in place of their clients, shareholders, or partners.

An AMC will invest you and their other clients’ pooled funds in securities that will match your declared financial objectives. These companies will provide you with more diversification and investing options than if you decide to pursue such an investment by yourselves. AMCs manage mutual funds, hedge funds and pension plans.

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Custody Account
This is a financial account managed set up for you by a responsible person known as an institutional custodian – this person has a fiduciary duty to you – in your behalf to hold your portfolio of securities.

The custodian is then tasked to record cash flows from interest and dividends, submit instructions in your behalf during proxy voting or corporate events, take delivery of spin-offs, and make sure that the shares will be at the custody account.

Fiduciary Duty
In the American legal system, a fiduciary duty is considered to be the highest duty a person owes to another person.

The fiduciary – the person who owes another person – is often required to put the interest of the principal or benificiary – the client, which is you – above his own. This includes sharing conflicts of interest. If a person breaches the fiduciary duties, that person will need to take responsibility for the ill-gotten profit.

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