A portfolio is defined as an assortment of various financial assets held by an individual or a company. Investors can create their investment portfolios on the basis of the mean-variance portfolio theory or two-parameter portfolio theory. According to this theory, it is assumed that investors will choose higher mean return as compared to a lower one, along with a lower variance of return when compared with a higher one. The main aim of building a portfolio is to have a set of asset or securities wherein some will function well and some will not, thus balancing out the effect of losses and profits.
An efficient portfolio management plan involves putting together a portfolio based on the assumption that investors have consistent expectations. Such sets of efficient portfolios can be determined with the help of graphical analysis, calculus analysis or quadratic programming analysis. One of the main advantages of graphical analysis is that it is easier to comprehend than the other two methods. However, graphical analysis cannot take care of portfolios that have more than three securities. The calculus method solves this problem as it can handle portfolios comprising of any number of securities. Quadratic programming analysis goes one step further as it can handle any number of securities factoring in inequalities. Quadratic programming is considered the most useful method in planning portfolios.
Many people choose to take the services of stockbrokers to manage their portfolios. Brokers are either individuals or firms that acts as intermediaries between buyers and sellers. Stockbrokers offer a range of services such as creating an account, management of the account and executing the orders of traders. Traders need to be careful while choosing their brokers, as it can make all the difference between profit and loss. There are many brokers who are authorized to operate on different stock changes and the decision of choosing the right one is often a matter of chance. It is advisable to make a list of brokers initially using the yellow pages and searching online. To select the best-suited deep discount broker, traders can conduct research online and ask fellow traders about their experiences with different brokers. The commission charged by a broker must be understood in detail and the actual dollar cost per trade must be determined before transacting.
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