- Managing a portfolio starts with choosing a mix of investments, but the work of trading and monitoring its performance is ongoing, based on factors such as goals, risk tolerance, market conditions and more.
- There are generally four options: you could do it yourself, use a robo-advisor, buy into a large institution’s managed tier with their in-house advisors or hire an independent financial advisor.
- Cost and service level are the major separating factors between these options.
Portfolio management involves picking investments such as stocks, bonds and funds and monitoring those investments over time. It requires a cohesive investing strategy based on your goals, timeline and risk tolerance. Portfolio management can be done with a professional, on your own or through an automated service.
An overview of portfolio management
Your portfolio is everything you own as investments: stocks, bonds, mutual funds and exchange-traded funds, as well as assets such as real estate, cryptocurrency, art and other collectibles. For most people, their portfolio is spread across multiple accounts, such as an employer-sponsored retirement account, an IRA and a taxable brokerage account. A person’s investments and accounts can be referred to as their “portfolio.”
Managing a portfolio comes down to a few recurring decisions, including:
Asset location
This decision answers one question: Where are your investments going to live? The type of account you pick will become your investments' home, and there are lots to choose from. The key is to pick the best type of investment account for your goals.
A major part of picking an investment account is choosing between taxable accounts and tax-advantaged ones. A tax-advantaged account is an account that is shielded in some way from taxes. Specifically, profits on investments that live inside these accounts are generally not subject to capital gains tax or the capital gains tax is deferred; similarly, interest income and dividends from investments in these accounts are generally not subject to income tax or the income tax is deferred. A taxable account doesn’t have these advantages, meaning that the profits, interest income or dividends from the investments living in those accounts may be subject to tax every year.
This decision can have both short-term and long-term implications.
Most designated retirement accounts, such as IRAs and 401(k)s, offer tax advantages. For example, money you contribute to a Roth IRA typically grows tax-free.
Tax-advantaged accounts often come with strict rules about when you can withdraw the money (often not until retirement). So you may also want to have a standard taxable investment account to invest for nonretirement goals (such as saving for a down payment on a home, starting a business or taking a vacation).
Asset allocation
Asset allocation (or portfolio mix) refers to how you divide your portfolio among different investment categories. How much you put in each category can be related to your level of risk tolerance. For instance, if you have many years to go before you retire, you have more time to take risk, and so you may consider putting a larger portion of your portfolio in riskier investments. If you're closer to retirement, you may want to have a larger proportion of less risky investments.
Diversification
Diversification refers to spreading out your investing dollars so you’re not overexposed to the risks posed by any single investment.
It could mean investing in different types of assets, such as stock or bonds.
It can also mean diversifying your investments within a single asset class, such as owning stocks in different geographies, size categories or industries. That way, if one particular company or industry sinks, your whole portfolio does not.
Investing in mutual funds or exchange-traded funds, which are essentially baskets of lots of different securities, can provide more diversification than investing everything in a single stock.
Rebalancing
Rebalancing is the act of buying and selling investments in order to realign the portfolio with the original target asset allocation. Over time, market fluctuations might cause a portfolio to get off course from its original goals.
For example, let’s say you decide that you want to have no more than 5% of your portfolio in AI stocks. If the portion of your portfolio that is in AI stocks suddenly mushrooms in value, this could mean that those investments go from, say, 5% of the value of your portfolio to 40% of the value of your portfolio. Rebalancing may mean selling some of those assets and taking the profit in order to keep their exposure to that industry at 5%.
Tax minimization
Tax-efficient investing can help avoid pricey surprises from the IRS. These strategies work to offset or lower an investor’s exposure to current and future taxes, which can make or break an investor’s returns. For example, holding high-growth investments in a Roth account means qualified withdrawals of earnings come out tax-free in retirement.
Additional strategies for tax-efficient investing can look like choosing certain securities that allow for some tax exemption (such as municipal or treasury bonds) or tax deductions, managing capital gains tax and tax-loss harvesting. We cover more in-depth strategies for tax-efficient investing here.
Active vs. passive portfolio management strategies
The two main portfolio management strategies are active and passive management.
Active portfolio management
Active portfolio managers take a hands-on approach when making investment decisions. They typically charge investors a percentage of the assets they manage. Their goal is to outperform an investment benchmark (or stock market index, such as the S&P 500).
However, high portfolio management fees can affect investment returns. Clients typically pay 1% of their balance or more per year to cover advisory fees .
Passive portfolio management
Passive portfolio management involves choosing a group of investments that track a broad stock market index. The goal is to mirror the returns of the market (or a specific portion of it) over time.
Many people use robo-advisors for passive portfolio management. These services use a computer algorithm to automatically choose and manage investments based on parameters you set, including your goals, time horizon and risk tolerance.
Robo-advisors also charge a percentage of assets managed. But because there is relatively little hands-on management, it typically costs less than active portfolio management (generally between 0.25% and 0.50% per year).
Three options for portfolio management
Do-it-yourself | Robo-advisor | Human advisor | |
|---|---|---|---|
What it is | You pick and maintain your own investments. | Software that builds and manages your portfolio based on parameters you set (time horizon, risk tolerance, investment preferences, etc.). | A person or firm you hire to manage your investments. |
Typical cost | Fund fees, commissions, brokerage fees, account fees or subscription fees, plus the value of your free time. | Typically less than 1% of your balance per year, plus fund fees. | About 1% per year, plus fund fees. Some may instead charge a flat-fee. |
Typical minimum | None. | Low to none. | Varies widely, though some have none. |
Human advisor access | None, but there are financial advisors who charge for advice only if you want occasional expert help. | Typically none, though some firms may offer some human advisor access at higher account balances. | Yes. |
Best suited to | People who want control of their own investments, understand markets and instruments, and will put in the time. | Straightforward financial situations and smaller balances. | Complex finances, or for those who want a higher level of oversight into a fuller picture of their finances. |
How to decide which portfolio management option to choose
These four questions can be a good starting point if you’re choosing between managing your portfolio yourself or hiring outside help:
Do you want advice and/or help with maintenance? A robo-advisor’s main pro is automating investing – it may allocate, rebalance and even perform tax-loss harvesting, typically for a very low cost. But if your finances are more complex, and human judgment and responsiveness are necessary, then a robo-advisor may not be ideal.
Do you have the time, interest and investing discipline? Managing your portfolio might not be hard for some, but it is a recurring task. Rebalancing and checking your asset allocation requires time, as well as the discipline to stay steady during market downturns where warranted.
How much are you investing? If you’re investing small amounts, using a robo-advisor for portfolio management is likely the cheapest option. As you start to approach higher account balances or you have complex questions about your financial situation, you can start to explore options for human portfolio management.
What is the estimated cost? For every option or provider you’re considering, translate that percentage fee into an annual dollar figure based on how much you want to be managed.
If you land on wanting to hire a portfolio manager, the next step is considering cost structure, minimums, services and credentials. Below is how that next decision maps out.
Large financial institutions vs. an independent financial advisor
Choosing to hire a person to manage your portfolio can lead you down two different paths, both of which provide slightly different services.
Large financial institutions that offer portfolio management often build their own model portfolios that vary by risk level or investing preferences. Clients can choose to invest their own portfolios according to one or more of these models rather than have portfolios built around them. Some of these model portfolios are actively managed. A higher account balance typically opens you up to a higher tier of service, which may include a dedicated human advisor or team of advisors. You may also have to move your accounts to the institution.
With an independent investment advisor, portfolio management might be more custom. A single advisor, or a small team, builds and monitors your investment portfolio for you. The investments they choose can come from a range of companies. Their fees may be a percentage of assets under management, but some may charge flat fees.
When looking for investment advisors, look for those that are fiduciaries, meaning they’ll put your interests above their own. Remember, though: "Financial advisor" is a general, informal term — anyone can use it regardless of credentials or registration. When evaluating a human advisor, it's worth checking their specific registration status and credentials (see below). Ask whether they act as a fiduciary, meaning they're legally required to act in your best interest, and understand what that does and doesn't cover, so you can factor it into your decision.
Note that representatives at large financial institutions may be registered as broker-dealer representatives, who are held to Regulation Best Interest, rather than investment advisers, who owe you a fiduciary duty. Ask which capacity a given representative is acting in before you invest.
» A full explainer into financial advisors and what they do
Portfolio management vs. wealth management
The main difference between portfolio management and wealth management is that portfolio management deals strictly with a client's investment portfolio and how to best allocate assets to fit their risk tolerance and financial goals. Wealth management is typically for high-net-worth investors and often includes services such as estate planning, tax preparation and legal guidance in addition to investment management.
» Interested in wealth management? See our list of the best wealth advisors
What is a portfolio manager?
- Anyone managing your money for compensation should be registered with the SEC or a state securities regulator as a registered investment adviser (RIA). As an RIA, they’re held to a fiduciary standard, which means they’re legally required to act in your best interest. However, registration doesn’t imply a certain level of skill or endorsement from regulators.
- Some advisors also hold a Certified Financial Planner® designation, which requires a bachelor’s degree and additional coursework and experience. CFPs are held to a fiduciary standard when providing financial planning services, and their status can be verified through the CFP Board's search tool.
- To verify a portfolio manager's registration, disciplinary history and business practices, check the SEC's Investment Adviser Public Disclosure database (adviserinfo.sec.gov) and FINRA's BrokerCheck (brokercheck.finra.org), in addition to the CFP Board's search tool for CFP status.
What’s the difference between portfolio management and investment management?
Article sources
- 1.Envestnet. State of Financial Planning Fees. Accessed Sep 15, 2026.
