What is the investment management process?
Managing an investment portfolio is a four-step process: evaluating your needs and goals, developing a plan, executing the plan, and measuring and evaluating the plan’s progress. In the evaluation step, the portfolio manager and client determine investment objectives, establish risk tolerance, and set expectations. In the next step, they choose an asset allocation based on all these factors. The portfolio manager then puts this plan in action, and in the fourth step, monitors and adjusts asset allocations based on performance and new opportunities or threats in the market.
Why is investment management important to estate planning?
For high-net-worth individuals, managing investments is essential for successful wealth transfer. As part of the estate planning process, a wealth manager can help a client protect their assets and minimize inheritance and transfer fees and taxes. This can ensure that the maximum amount of their clients’ wealth is distributed according to their wishes without imposing an undue burden on the recipients.
What is asset allocation? How does it work?
Asset allocation is the process of dividing your investment dollars among different asset categories such as stocks, bonds, cash, and cash equivalents. The goal of asset allocation is to minimize risk while maximizing your investment return. Since asset categories do not all respond to market changes in the same way or simultaneously, poorly performing asset categories and any corresponding losses may be offset by gains in other asset categories to minimize the overall effect on your portfolio. Selecting an asset allocation is one of the most important investment decisions you will make. Your financial advisor can help you determine how to allocate your investment dollars depending on your goals, investment timeline, risk tolerance, and portfolio size.
What is diversification?
No matter what type of assets you invest in, there will be an element of risk as markets and interest rates rise and fall. Diversification is a strategy your financial advisor will use to spread your money across various asset categories and industries to help reduce volatility in your portfolio over time, thereby helping manage and balance risk and reward in your investment portfolio. The proverb “Don’t put all your eggs in one basket” best describes the goal of diversification and should be top of mind when constructing an investment portfolio.