Question about portfolio approach

timer Asked: Dec 3rd, 2015
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Question Description

  • What are the strengths and limitations of The Portfolio Approach? How does the Corporate Parent Role help remote strategic business units improve performance?

Tutor Answer

Professor Mary
School: Cornell University

Thank you for the opportunity to help you with your question!

Portfolio analysis is a procedure  where managers evaluate the profitability of a number of products and services a business is offering. It is aimed at  helping optimize the sharing  of resources among those products and services. While portfolio analysis is a very  useful tool for thinking about how to optimize return on investment, it does have a few limitations.

Even with the most careful planning and portfolio construction, past performance is never a guarantee for future results. Even the most thought out investment strategies can fail given the proper circumstances. Additionally, investment objectives can change over time. For example, from long-term growth during the early stages of a career to preservation of capital during retirement, a portfolio analysis will need to be done periodically to make sure your investments are in line with your objectives.

it also has some advantages such as 

tax advantages.

portfolio analysis also is advantageous in minimizing the tax impact on portfolio returns. Depending on such variables as the type of account, security type and tax bracket of the investor, taxation can eat into returns and make otherwise attractive investments mediocre at best. A portfolio analysis with a focus on tax efficiency may prove advantageous in identifying ways to structure investments to minimize the impact of taxes and increase the net return to the investor.

Please let me know if you need any clarification. I'm always happy to answer your questions.

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