Investment Portfolio Management Styles

This set of vocabulary flashcards covers strategic and tactical asset management, active versus passive portfolio strategies, and specific bond management techniques like ladders, barbells, and bullets.

Asset

A type of investment or object of value, such as stock, long-term bonds, or real estate.

Asset management

The process of maintaining a suitable mix of asset allocations (percentages) given an investor’s situation.

Strategic asset management

Setting a long-term asset allocation based on the investor’s goals, time horizon, and risk tolerance.

Rebalancing

The process of selling a portion of an outperforming position and investing the proceeds in other assets to return the portfolio to its original target strategic allocation after market drift.

Tactical asset management

Temporarily deviating from a long-term strategic allocation to pursue short-term opportunities or reduce short-term risk.

Active portfolio management

Selecting individual securities with the goal of “beating the market” (outperforming a benchmark index).

Benchmark index

A comparable index to a specific investment, such as the S&P 500 for a large-cap stock fund.

Passive portfolio management

Investing in the broad market without trying to identify the best individual securities, often to capture the market’s return at a lower cost.

Expense ratio

The operating costs a fund deducts from its assets, which reduces the return received by investors. In 2021, the average for active funds was $0.60\%$ compared to $0.12\%$ for passive funds.

Indexing

A goal pursued by passive management investors to hold investments that mirror index movements, often using index funds, ETFs, or index options.

Bond ladder

A strategy that spreads bond purchases across many different maturities (e.g., every three years) to create maturity diversification.

Revolving door approach

A method used in a bond ladder where the proceeds from a maturing short-term bond are reinvested into a new long-term bond.

Bond barbell

A strategy where the investor buys short-term and long-term bonds but avoids intermediate-term bonds to balance liquidity and higher yields.

Bond bullet

An investment strategy targeting a specific future date (a "bullseye") where all bonds in the portfolio are purchased at different times to mature in the same target year.