Investment is a great way to build wealth over time but it requires discipline, patience, and knowledge. It could be challenging for both novice and seasoned investors to achieve their goals without a strategy. Here, investment management plays an important role. Investment management is a critical part of personal finance and is a bridge between financial security and wealth accumulation. It might sometimes be challenging for new and experienced investors to understand the nitty-gritty involved in investment management as it would be different for individual investors and business owners. In this blog, we will discuss the best investment management advice to dodge investment complexities.
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Investment Management: An Introduction
Investment management refers to handling a portfolio of securities like stocks, bonds, and mutual funds, more professionally with the main aim of growing and preserving wealth. It involves the selection, buying, and selling of various types of investment assets. Investment management is also known as asset, wealth, money, or portfolio management.
Investment management involves creating a strategic plan that aligns with the individual or business owner’s financial objective, risk tolerance, and time horizon. A successful investment strategy involves strategic planning, diversification, and risk management. Its aim is also to protect the portfolio from market volatility.
What is Investment Management Advice?
Advice means to inform, educate, or guide an individual on any matter he is stuck. Similarly, when an investor is unable to make certain investment decisions, he can seek investment management advice.
The advice can be professional which means a person can hire an investment manager or can contact an investment management firm to manage his portfolio and pay him a fee or an individual can gain knowledge from various sources and manage his portfolio by himself.
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How does Investment Management Advice Work?
An advisor holds expertise in investment management services and gives investment management advice to his clients. He helps in choosing the right investment vehicle based on your goal. Investment managers charge a fee for their services depending on the type of service you want from them. Investment managers typically provide financial advice on proper asset allocation within a portfolio to help you achieve your financial goals.
Generally, managers follow the below-mentioned process in financial planning.
1) Define the investment goals: The first step is to define your financial goals and divide them into short-term, medium-term, and long-term goals. Short-term goals are generally designed for short-term gains with a time frame of 1 to 3 years like planning a vacation or wedding, saving for emergencies, and so on. Short-term investments generally focus on liquidity and safety over high returns. Medium-term goals are within the time frame of 4 to 10 years which focuses on a child’s education, buying a home, and so on. Long-term goals are generally for more than 10 years. It includes retirement planning, wealth accumulation, estate planning, and succession planning.
2) Risk tolerance assessment: A manager will understand your risk tolerance capacity and manage your investments accordingly. A risk-averse client, he will consider safer investment options that might give low returns but guarantee safety. For someone with an aggressive growth mindset, a manager will choose the investment options accordingly. So, a manager creates a plan that’s tailored to your individual needs and suits the financial situation.
3) Diversifying your investment portfolio: Diversifying simply means not putting all your eggs in one basket which means that you spread all your investments across different asset classes, industries, and geographical regions so that poor performance of a specific asset will be covered in other assets. Managers make investment decisions on behalf of their clients to help them achieve their financial aim and help them diversify their portfolios.
4) Focusing on long-term goals: Better financial planning involves setting long-term goals. Once you are focused on specified investment goals, the market fluctuations will not influence you. You will be focused and stick to your strategies to achieve your long-term goals.
5) Review and rebalance the portfolio: A manager’s role involves investing and managing, regularly monitoring, and rebalancing the portfolio as per the client’s specific investment goals. When the market is volatile, the manager will assess the overall performance of the portfolio and will realign it with the investment aim of the client by buying and selling the assets.
6) Making tax-efficient Strategies: Taxes significantly impact your investment returns hence creating tax-efficient strategies to minimize tax liabilities is important. Efficient tax planning can help increase your investment gains and minimize the tax burden.
7) Sticking to your plan: The best investment management advice is to stick to your plan. You can regularly revisit your goals and make some adjustments to your portfolio if needed. Remember, not to make these adjustments based on your short-term gains.
8) Know the exit strategy: In investment management, it is equally important to know when to exit. You need to have a clear exit strategy depending on your investment goals. The strategy can be fixed depending on your financial situation, period, or target price.
This process requires skills, time, knowledge of market volatility, and so on and it might not be feasible for you to put in all your efforts as your main focus would be earning money. Hence, you can hire a portfolio manager to manage your investments.
Value of Investment Advice by a Professional Adviser
Investment requires skills, time, knowledge of market volatility, and so on. Many investors choose to manage their portfolios by themselves but seeking investment management advice from an expert will multifold the returns. Wealth management services include asset allocation, risk management, retirement planning, estate planning, tax planning, and succession planning.
Advisors have access to exclusive investment opportunities such as private equity funds, hedge funds, and other exclusive funds that might not be available to individual investors. Hence, working with a financial advisor or advisory firm will help you increase your returns. They also guide you in important life decisions such as retirement planning and succession planning.
While finalizing an expert, make sure that they are fiduciaries, which means they are legally obligated to serve you in your best interest. Also, enquire about their fee structure, credentials, experience, skills, and client results. This will help you trust their background and freely share your objectives.
Why Work with an Advisor?
Understanding the investment management process might be tricky for investors, especially for non-finance background individuals. Another fact is one investment strategy will not apply to all investors as factors like income, expense, risk tolerance, and financial goals will be different for every individual. Here, an expert plays an important role and designs strategies that suit you and your conditions. Below are some important reasons to hire an expert
1) Understand individual financial goals: Every investor is unique as he has different financial goals as per their economic condition, background, income level, and expenditure. An individual might want to secure his retirement or buy a home, fund his child’s education, secure his child’s future, and many more. An advisor will understand his goals and design the strategies accordingly.
2) Assess risk-taking capacity: Your attitude to risk might be different from others. Some investors are aggressive and some are risk-averse investors. An expert understands your attitude to risk and provides advice customized to your preference of risk. He will share options for investments within your risk-taking capacity.
3) Provide discipline and structure: New investors tend to become emotional especially when the market is volatile. In such situations, an adviser pulls you up and makes sure that you stick to your plan and avoid making impulsive decisions that could adversely impact your long-term goals.
4) Adaptability to changing circumstances: Life and the financial market are unpredictable. Hence, there will be unexpected and unfavorable situations coming to our doorsteps. At times, to combat these situations you need to take a step back in your financial journey. In such scenarios, an advisor plays a major role in creating a balance between your investment objectives and curbing the situation. He will create a strategy that will help you handle both situations easily.
Conclusion
Every individual investor has unique financial and economic conditions. Hence, one investment management advice might not give results to another investor. The key to gaining investment success is not only in choosing the right investments but also in having a perfectly defined plan.
Therefore, an expert creates a plan based on individual client needs. Whether you are a novice or have a huge portfolio, seeking investment management advice from an advisor will help you maintain discipline and optimize your results. Remember, the investment journey is a marathon so you need to keep patience, stay informed, and focus on your financial goals.
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