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2024 Curriculum CFA Program Level I Portfolio Management and Wealth Planning


This reading provides an overview of portfolio management and the asset managementindustry, including types of investors and investment plans and products. A portfolioapproach is important to investors in achieving their financial objectives. We outlinethe steps in the portfolio management process in managing a client’s investment portfolio.We next compare the financial needs of different types of investors: individualand institutional investors. We then describe both defined contribution and definedbenefit pension plans. The asset management1 industry, which serves as a criticallink between providers and seekers of investment capital around the world, is broadlydiscussed. Finally, we describe mutual funds and other types of pooled investmentproducts offered by asset managers.

Learning Outcomes

The member should be able to:

  1. describe the portfolio approach to investing;

  2. describe the steps in the portfolio management process;

  3. describe types of investors and distinctive characteristics and needs of each;

  4. describe defined contribution and defined benefit pension plans;

  5. describe aspects of the asset management industry;

  6. describe mutual funds and compare them with other pooled investment products.


  • A portfolio approach to investing could be preferable to simply investing in individual securities.

  • The problem with focusing on individual securities is that this approach may lead to the investor “putting all her eggs in one basket.”

  • Portfolios provide important diversification benefits, allowing risk to be reduced without necessarily affecting or compromising return.

  • Understanding the needs of your client and preparing an investment policy statement represent the first steps of the portfolio management process. Those steps are followed by asset allocation, security analysis, portfolio construction, portfolio monitoring and rebalancing, and performance measurement and reporting.

  • Types of investors include individual and institutional investors. Institutional investors include defined benefit pension plans, endowments and foundations, banks, insurance companies, and sovereign wealth funds.

  • The asset management industry is an integral component of the global financial services sector. Asset managers offer either active management, passive management, or both. Asset managers are typically categorized as traditional or alternative, although the line between traditional and alternative has blurred.

  • Three key trends in the asset management industry include the growth of passive investing, “big data” in the investment process, and robo-advisers in the wealth management industry.

  • Investors use different types of investment products in their portfolios. These include mutual funds, separately managed accounts, exchange-traded funds, hedge funds, and private equity and venture capital funds.

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