This lesson examines the practical process of constructing and managing an investment portfolio.

6.1 Asset Allocation
Asset allocation is the primary determinant of a portfolio’s long-term risk and return. This involves determining the strategic mix of asset classes (equities, fixed income, alternatives, cash).

6.2 Portfolio Construction
Security selection is the process of choosing specific securities within each asset class. The portfolio is constructed to reflect the investor’s objectives and constraints. The process involves:

  • Incorporating the client’s investment policy and risk tolerance.

  • Selecting a diversified set of assets.

  • Considering tax and liquidity implications.

6.3 Investment Strategies
Investment strategies can be active (attempting to outperform a benchmark) or passive (tracking an index). The Edinburgh Napier University syllabus includes “passive and active investment strategies” . A core skill is the construction of a complete portfolio that aligns with client objectives .

6.4 Portfolio Rebalancing and Monitoring
Portfolios are rebalanced periodically to maintain the target asset allocation. Performance is monitored and reported to the client.

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