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Helping people and organizations manage their investments toward growth takes careful planning and thoughtful decision-making. The professionals who work in this field study the market to choose the right mix of assets — the portfolio — and adjust strategies to help clients meet their financial goals.

Portfolio managers work for a range of investment firms, including banks, hedge funds, wealth management firms, pension funds and insurance companies, to name a few.��

Before discussing the role and responsibilities of portfolio managers, it may be a good idea to ask (and answer), “What is an investment portfolio?”

An investment portfolio is an array of investments for either an individual or an organization. Portfolios may contain bonds, stocks, mutual funds and exchange-traded funds (ETF), and investments like art, real estate or cryptocurrency. The objective is to earn returns over time — long and short term — while managing the risks in accordance with the risk tolerance set by the client.

Types of portfolios include:

• Income portfolio: Includes coupon-yielding bonds and dividend-paying stocks, both of which pay investors on a regular, scheduled basis.
• Balanced portfolio: Holds a combination of stocks and bonds, with the goal of spreading risk across investments.
• Growth portfolio: Consists primarily of stocks. These stocks are expected to grow over time but may experience price dips in the short term.��   

A financial professional who manages portfolios is responsible for creating and overseeing investment portfolios that will meet the financial objectives of clients. They analyze market trends, select assets and adjust strategies to optimize returns while managing risk. Clients can range from individual investors to large institutions, each with unique goals and risk tolerances.

Finance professionals who manage portfolios can specialize in investments that may be good for individuals or institutions. Both types of managers strive to create portfolios that work for their clients, but they often use different strategies due to the size and complexity of the investment.

Financial professionals who manage the assets of individual investors have different goals than institutional investors. Individuals may want to save for retirement, build an emergency fund, pay for their children’s education or do a combination of those things. Portfolios for individuals typically contain smaller amounts of money than those for institutions. The manager may design a fund in a way that reflects their client’s risk tolerance, among other factors.

Institutional investors, on the other hand, are organizations that collect vast amounts of money to invest in pension funds, foundations and endowments, to name a few. They may focus on long-term growth strategies in order to meet future financial obligations. These investors may also be concerned with long-term stability and capital preservation.��

As the names suggest, active and passive portfolio management differ in the level of engagement with the portfolios.

Managing active portfolios requires constant monitoring of the market to outperform indices such as the Russell 1000 Index or the S&P 500 Index. As the market changes, managers may need to adjust by buying or selling stocks and other investment vehicles.

Those who manage passive portfolios take a hands-off approach by designing investment strategies that closely follow a specific market index, such as the NASDAQ or Dow Jones Industrial Average. Rather than trying to outperform the market, they aim to match its performance over time, using the index as a benchmark for expected returns.��

Sector-specific managers oversee investment vehicles like mutual funds and ETFs that invest in a certain industry or sector of the economy, all with an eye toward outperforming the market overall. Because these funds lack a level of diversity, they may be more volatile than a fund with a mixed group of sectors.��

Under the (GICS), there are 11 sectors by which companies can be classified. This short list shows some prime examples:

• Energy sector funds
• Commodities sector funds
• Healthcare sector funds
• Technology sector funds
• Consumer staples sector funds

An investment strategy is a structured approach used to allocate assets in a way that aligns with a client’s financial goals, risk tolerance and time horizon. The choice of strategy depends on the client’s needs and market conditions. In addition to the active and passive strategies mentioned above, the following are a few of the others they may use:

• Aggressive strategy: Seeks high returns by investing in high-risk, high-reward assets such as growth stocks, emerging markets or tech startups. This approach is typically suitable for investors with a long time horizon and a higher tolerance for market volatility.
• Defensive strategy: Prioritizes capital preservation and stability. This approach focuses on less volatile investments such as blue-chip stocks, bonds and dividend-paying equities. These types of investments are more likely to have predictable returns and stronger investor confidence. Defensive strategies are often used during uncertain market conditions or for clients nearing retirement.
• Balanced strategy: Offers a middle ground by blending elements of both aggressive and defensive approaches. This strategy is often appropriate for clients (ideally in their mid-30s to 40s) who want steady progress toward financial goals without excessive exposure to market volatility.

The relationship between portfolio managers and their clients begins with communication. Retaining a stable client base requires regular contact regarding issues such as economic trends, market conditions and updated investment research. In fact, part of these managers’ fiduciary duty includes meeting with their clients at least once a year to ensure that each client’s investment goals haven’t changed. If their goals have changed, it’s time to adjust the portfolio.

Some investment firms now have investor portals that give investors secure access to key details about the funds they’ve invested in. These details may include analytics and other metrics to show transparency.�� 

In addition to meetings and investor portals, finance professionals who manage portfolios must provide reports tailored to each client. These reports may be very brief (e.g., “sell”) or they could be hundreds of pages long. The information contained within should cover the rationale and evidence for any changes or suggested changes.

Reports may also contain information about what the manager is going to do for the client (or prospective client) and how much these services cost.