Investment Management Explained

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By: Kevin Christopher JD, Wealth Advisor

 

Investment management is the process of buying and selling investment assets in order to achieve the best return on investment possible.

Let’s take a closer look at investment management and explain what it is, how it works, the investment planning process involved and other things you need to know before embarking on your investment management journey.

What Is Investment Management?

Investment management is about making smart investments with your money in order to grow your wealth over time. The goal is to generate positive returns while minimizing risk.

This can be done by creating an asset allocation plan that balances different types of investments, choosing appropriate investments for your goals and risk tolerance, and actively managing your portfolio over time.

 Stocks and Investment Management

When you invest in stocks, you become a part-owner of that company. When the company makes money, it pays out dividends to its shareholders and you receive a portion of those profits as income. The goal is to spread your money out across different types of investments in order to reduce risk and maximize growth potential.

In most cases, you can also sell your shares back to the company (or another investor) at any time for whatever price you agree upon. This is what is known as the stock market.

Investment Planning Process

The investment planning process is a key step in the overall investment management strategy. This process begins with analyzing your current financial situation and future goals. Once this information is gathered, a plan is put together to help you achieve your desired results.

Investment Portfolio

An investment portfolio is a collection of investments and assets owned by an individual or organization. It can include stocks, bonds, exchange-traded funds (ETFs), mutual funds, private equity investments, real estate holdings and more.

The goal of having an investment portfolio is to balance risk and reward so you can achieve your financial goals in the future.

Portfolio Construction and Implementation

In order to properly implement a portfolio that will maximize returns while minimizing risks, many factors need to be considered. These include, but are not limited to:

  • The type of investment (stocks versus bonds)
  • Asset allocation (how much money goes into each category)
  • Rebalancing frequency, and so forth

A good investment advisor could help decide what kind of assets should be used within a portfolio’s structure to achieve its objectives while minimizing risks associated with them. The first step is to determine your risk tolerance level.

What Is Risk Tolerance?

Risk tolerance refers to an investor’s ability (or willingness) to lose money without being negatively impacted by it emotionally or financially. This can also be called risk capacity because it indicates how much risk someone can take on without feeling overwhelmed or panicked. It’s important to understand your risk tolerance before investing in any assets, as some investments are riskier than others.

You need to make sure that the risks you take align with your personal goals and constraints. Once you determine what you are willing to risk, it is equally important to determine what you can’t, under any circumstances, lose; this is referred to as irreplaceable capital.

What Is Irreplaceable Capital?

Irreplaceable capital refers to the money that you cannot afford to lose and must be preserved at all costs. This includes things like your emergency fund, retirement savings and other long-term investments.

It’s important to remember that not all assets are created equal, and some are riskier than others. Only invest in assets that fall within your acceptable risk tolerance to avoid putting your irreplaceable capital at risk.

How do you know in which assets to invest? The process of asset allocation and management guide the way.

Asset Allocation and Management

Asset allocation and management is the process of choosing:

  • Which assets to invest in
  • How much money should be invested in each type of asset
  • When it’s time to sell those assets

The goal is to choose the right investment types so you can reach your financial goals without taking on too much risk.

The asset allocation process can vary from investor to investor based on a variety of factors including their age, income level, risk tolerance level, time horizon and more.

It’s important to remember there’s no plan that is perfect for everyone. You may need to make some adjustments (rebalancing) along the way, but having a solid investment plan in place will give you a roadmap to follow as you work toward your financial goals. 

Rebalancing Frequency

Rebalancing is the process of adjusting your asset allocation to reflect changes in the market.  It allows you to stay on track, even when markets are volatile. It also helps ensure that investors don’t miss out on opportunities because they’re too focused on day trading instead of investing for the long term.

Monitoring Investments

Investment managers monitor your portfolio to ensure that it is performing as expected. If there are any changes in market conditions or other factors impacting the value of one’s investments, they will make adjustments accordingly to protect capital while helping to maximize returns over time. This type of strategic approach helps to mitigate risk by reducing volatility, which ultimately leads to greater long-term success.

Investment Types

There are two main types of investment: debt and equity. Debt investments provide a fixed stream of income until the bond matures, while equity investments represent an ownership stake in a company. They offer the potential for profits if the stock price rises, but also come with the risk of losses if the stock price falls.

Debt Investments: Bonds

A bond is a loan that you make to an institution. The institution will pay interest on the bond, which can be collected at regular intervals until it matures. At this point in time, they’ll return your principal investment along with any remaining accrued interest payments owed as well.

Equity Investments: Stocks

Stocks refer to owning shares in a publicly traded company. You can make money by selling the stock at a higher price than you purchased it for, or by receiving dividends from the company if they declare any. Some stocks pay out dividends on a quarterly basis, while others do so annually.

What Is Benchmarking?

Benchmarking is a process in which you compare the performance of an investment to another similar investment – for example, if you’re investing in stocks and want to see how your portfolio performs against other stock-based investments.

Benchmarks help investors determine if they are getting good returns on their investments relative to other people investing in similar assets at the same time period.

How Can an Investment Management Company Help?

An investment management company can provide advice on which assets are best suited for you so you can reach your goals while minimizing risk as much as possible. A good investment management company can help you with all aspects of your financial life.

Many people believe that investment management is only for the wealthy, but this is not the case. In fact, a good investment advisor can help those with modest incomes save for their future and help provide financial clarity.

Bring In Professional Investment Management

Setting an investment plan in motion and getting results is no easy task. Nesso Wealth helps you work toward your financial goals through transparent, disciplined and proactive planning. Our team of professionals can help ensure that your needs are met.

Our open communication helps us create a trusting relationship so we can better understand your goals and help you pursue them. The investment strategies we implement are tailored to your financial plan and your goals. Reach out for a consultation to start your investment planning.

 

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