Principles of Investment Practice Exam 2025 – Complete Study Resource

The primary objective of the portfolio management process is to create and maintain a portfolio that aligns with the investor's specific goals, risk tolerance, and investment horizon. Effective portfolio management involves a strategic approach to selecting assets, diversifying investments, and periodically rebalancing the portfolio to adapt to changing market conditions and the investor's circumstances.

This alignment with investor goals is crucial because it ensures that the portfolio is structured to meet the individual’s financial needs, whether those are for retirement, education funding, or wealth accumulation, among others. Managing a portfolio with the aim of fulfilling these objectives takes into account factors such as the investor's income requirements, liquidity needs, and risk appetite, making it a core function of the investment process.

While minimizing market exposure, focusing on short-term gains, and investing in high-risk assets can be elements of investment strategy, they do not represent the overarching purpose of portfolio management, which is fundamentally about personalization and achieving long-term financial objectives.