7.2. Portfolio Management

After determining where a customer is and where he needs to go, the representative faces the delicate task of deciding how to get there. Like anyone on a journey, choosing the correct path between Point A and Point B can make the difference between getting there sooner than planned or not getting there at all. Likewise, choosing the right investments to move investors from the present to their future goals is both an art and a science that lies at the heart of the representative’s role.

Most professionals today rely on some version of modern portfolio theory (MPT) to guide their customers’ investment decisions. Under modern portfolio theory, investment professionals try to find a superior portfolio by systematically choosing a diversified set of investments in relationship to one another that maximizes returns and minimizes risks.

Prior to the development of modern portfolio theory, por