What to know about managing your own portfolio

If you plan to research financial instruments, select those you think fit your investment goals, purchase the instruments and then track the performance by yourself, then you are managing your own portfolio.

The alternative is to allocate an amount of money each month to a professional money manager who selects the investments and gives you a report on their performance. This post is not meant to pass a judgment on which of these two is better. Instead I’m going to shed some light on what one can expect when s/he manages a portfolio.

The first thing about managing your own portfolio is that you will need to research if you hope to beat the performance of professional managers. Because professional managers are paid fees, they have the resources to research extensively on investments before making their decision on which one presents the best returns for the level of risk they are willing to accept. Putting in time and money to research is necessary to meeting your financial goals.

Related to the first point is the issue of information. If your investment involves trading, then access to information is usually what will separate success from failure. A retail trader relying on the news and/or their own technical analysis is not a match for a firm with dozens of traders, Ph.D quants, algorithms, back-tested strategies, the fastest news and so on. This difference in trading firepower is why you should not make it a significant part of your own portfolio unless you are using professional money managers.

When managing your own portfolio you need to think of risk management first. Because your capital is small compared to the pool of funds a money manager had to deal with, you are more likely to be wiped out without a chance to come back if you load up on risky assets. Your risk tolerance is simply lower than that of professional fund managers and you should act accordingly.

Diversification becomes much more difficult when you’re managing your own portfolio. Unless you have quite a sum, it would be difficult to divide your money over several stocks (unfortunately Ghana does not have index funds or ETFs) or other instruments. The key to getting around this is investing in low risk assets until you have saved enough to start diversifying your money into other assets.

My final point is something I overlooked until I started managing my portfolio. And that is tracking performance. Gathering the balances of the instruments in your portfolio and then deriving the percentage return over a calendar year is time consuming and it’s tempting to ignore it. However, you cannot tell if your portfolio is doing well or poor if you do not take the time to calculate your returns and you may be making the wrong decision as a result.

As I said, I do not wish to recommend either of these approaches to portfolio management. The right decision depends on each individual but I hope the information I have shared has shown some of the things one could expect from managing a portfolio.

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Jerome Kuseh

Accountant | Economist-in-Training | Private Investor
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