Do you need investment management? Many people believe that investment management should only be considered once their investment portfolios have reached a certain size. But in fact, investment management should be considered one component of a comprehensive financial plan, which should also include a review of your cash flow and expenses, retirement planning, college savings for children, an estate plan for your assets, and insurance planning as risk mitigation.
In other words, you should no more go without investment management as part of your financial life than you’d go without retirement savings or insurance.
What Do Investment Managers Do?
Develop a Comprehensive Picture of Your Financial Life
A good investment manager will start by developing an overall picture of your life. They will discuss your overall goals, interests, and situation. Investment portfolios don’t exist in a vacuum from other areas of your life, which is one of the reasons investment management is part of a comprehensive financial plan.
An investment manager needs to know, for example, what your life plans are. Would you like to start a business five years from now? Do you want to move to a larger home or one in a different area? Are you planning more children? When and where do you want to retire? All of these questions have a bearing on your investment goals.
They also need to know your life situation. Are you supporting a former spouse? Putting children through private school? Likely to inherit money from your parents or other relatives? All of these affect the funds you have available for investment.
Once an investment manager knows your goals and life situation, they will develop a portfolio that aligns with your goals.
Assess Risk Tolerance Versus Goals and Time Horizons
An investment manager will also assess your risk tolerance vis-à-vis the time horizon for your goals. Why? Because investments differ in their degree of risk, and risk needs to be managed to meet your goals in the appropriate time frame.
Here at Financial Freedom, we will look at the goals for your investments and their time frame. We will then seek to create wealth in excess of inflation by investing in low-cost stocks, mutual funds and exchange-traded funds (ETFs). Using a mix of stock and bond investments, as well as other alternatives when appropriate, we will carefully manage your risk. And we explain what we’re suggesting and why so you understand it every step of the way.
Manage Asset Allocation and Diversification
An investment manager can also develop portfolios with appropriate asset allocation for your individual goals by using diversification among asset classes.
Portfolios are allocated by asset, with certain percentages directed into stocks, bonds and cash instruments, and other investments. Allocations divided partly into stocks and partly into bonds can provide a strong blend of appreciation potential and steady returns, utilizing the strong points of both stocks and bonds. A portfolio divided into several asset classes with different profiles is said to be diversified.
Asset allocations also change over time. As people approach retirement, for example, they may move percentages of their money into more conservative asset classes, to conserve their capital for when retirement comes.
Asset allocations can also be devised to accommodate your risk tolerance. Human beings vary in their comfort level with fluctuations in their money. Some people may simply be anxious or unable to sleep at night knowing that they could lose money in the stock market. If that’s you, an investment manager can recommend an allocation in which stocks play a small role.
Advice on Investment Selection
An investment manager will also advise you on specific investment selection. There is, of course, a very wide universe of stocks and bonds to choose from. They can research to find the most appropriate selection.
They also handle the purchase and sale of the investment.
Investment managers should also keep you apprised of the performance of your portfolio on a regular basis. They should review your goals and plans vis-à-vis the money at least annually.
So do you need investment management? The answer is …yes, you do need investment management. Contact Financial Freedom Fee-Only Wealth Management for a complimentary conversation to see if our services will be a fit for your needs.