Investment Management Basics for a Successful Portfolio

investment management
February 16th, 2021 0 Comments

Managing your investments well is crucial to any long-term successful financial planning strategy. And this is especially true for high net worth individuals who likely have substantial amounts of investments to manage. We have written a fair amount on different aspects of investment management:

  • asset allocation
  • stock valuation
  • how to gear your investment management towards the 2020 economy

The purpose of this post is to tie all of that together. In this article, we will discuss the pillars of investment management by covering all of its major categories. We hope this guide helps you employ wise investment strategies to meet your financial and investment goals by practicing successful wealth management.


How to Begin Successful Investment Management

If you read our post on investment management in 2020, you saw that we provided a basic definition of investment management as the process of overseeing and managing an individual’s wealth. The actual service of investment management is generally carried out by a professional investment or wealth manager hired by a high net worth individual.

Of course, even if you hire a professional investment manager, the whole process is still quite personalized. Investment management should be tailored towards the particular investor’s financial priorities, risk tolerance, investment desires, and more.

There are three broad categories of investment management staples that we will cover in greater detail in this post:

  • asset management
  • stock selection and valuation
  • portfolio management


Asset Management

Let’s start with asset management. As you we’ve discussed, asset management is making investment decisions in relation to your portfolio. This usually means hiring an asset manager to help you decide which types of investments to make and when to make them.

Most financial advisors and investment advisors will also provide asset management services, especially when working with high net worth clients.

There are two broad types of assets that asset managers deal with: tangible assets and intangible assets.

Tangible assets are physically identifiable such as:

  • real estate
  • vehicles
  • cash
  • financial investments like mutual funds

Intangible assets do not physically exist, and include things like intellectual property and human resources (usually intangible assets apply more to businesses).


Managing your assets for smart investment management

First, unless you are an extremely savvy investor and portfolio manager, and have plenty of time, you should probably hire an asset manager.  They can look at your finances and portfolio through an objective, experienced lens.

Finding a manager who is well-qualified for the position and knowledgeable about asset management, allocation, and portfolios is of course necessary. But you also want to make sure that they are someone you trust. You want someone by your side who takes the time to listen to your financial concerns, comfort levels, and long term goals. Having this sort of relationship with your asset manager will go a long way towards the success of your assets.

Your asset manager will of course help guide you on how to best manage your assets. But it will never hurt for you to have some knowledge of asset management as well. Otherwise, it could be very difficult for you to provide feedback and make the ultimate decisions in terms of your asset management.

There are three important factors to think about when considering your overarching asset management strategy.

It’s important to reflect on your:

You and your asset manager can work together for an established understanding of where you fall in these categories. Then, you will be able to craft an asset management strategy specific to your needs and goals.


Stock Selection and Valuation

Let’s move onto our next investment management pillar: stock selection and valuation. Stock selection and valuation are tied to the concept of value investing.

Value investing is when you invest in stocks that you believe are worth less than their market value. Stock valuation is taking this concept of value investing and using it to determine a stock’s intrinsic value.

We will not delve too much into the various types and methods of stock valuations in this article. So, if you are interested in digging deeper into this aspect, read our recent post on stock valuation.

For now, we will just state that there are two types of stock valuation: absolute valuation and relative valuation. There are many different methods, or models in the process of stock valuation. As we’ve said, the two most common are the Dividend Discount Model (DDM) and the Discounted Cash Flow Model (DCF).


Investment management strategies

For this article what we really want to focus on is how you can use stock selection and valuation in your investment strategies.

As with asset management, your personal preferences, financial goals, and risk tolerance will play a large part in how you tackle stock valuation. But it also depends on how much of a role you want stock valuation to play in your investment performance.

And also as with asset management, the guidance of a financial advisor or investment advisor can be very beneficial in stock valuation. However, when considering stock selection and valuation as a part of your investment strategy, it’s good to use the many different models and methods of stock valuation to your benefit. The reason there are so many ways of going about stock valuation is that they each have specific scenarios that they work well in.

If you are going to successfully incorporate stock valuation as a part of your investment management plan, you want to know which valuation models work best for different companies and different scenarios.

Of course, this is by no means easy or straightforward. But it is certainly worth spending the time to do your research before fully incorporating it as part of your investment management plan.


Portfolio Management

Our last pillar of investment management is the one that ties it all together: portfolio management.

Your portfolio, of course, refers to all of your financial investments and assets including stocks, bonds, cash, commodities, and more. Portfolio management, then, is the process of managing your entire investment portfolio. Once again, this is typically carried out by an investment advisor or wealth management firm.

Again, your investment manager will review your long term financial goals and work to tailor your portfolio and investment strategies to your specific situation. Once you and your wealth or investment manager have a shared understanding on this, they will devise a strategy for how to construct, maintain, and grow your financial portfolio.


Asset allocation in portfolio and investment management

One of the buzzwords of portfolio management is asset allocation. Asset allocation is the process of spreading your investment portfolio around different asset categories. This comes from the idea that you are protecting your investments from being hit too hard in any given area or due to any one circumstance.

Asset allocation involves figuring out the best way to spread your funds across the categories of stocks, bonds, cash, and other asset classes. The specific allocation is of course different for every investor and dependent upon your financial situation. However, as a rule of thumb, different asset classes perform differently in the market at different times.

Thus, the better you are able to allocate your assets (or diversify your portfolio) the higher chance you have of withstanding detrimental market fluctuations.


Just the Beginning of your Investment Management Journey

Investment management is both highly personal and financially complex, especially for high net worth individuals. The quality of your investment management can play a huge role in your long term financial success, and certainly in your long term financial plans.

For these reasons, you want to be sure to devote enough time and energy to ensuring that your investment management plan is well thought out, and being carried out by a professional with plenty of experience. It can be a delicate balance being involved in your investment management plan that it is catering towards your needs and goals but also learning from investment management experts who have knowledge in the field.

We at Saddock Wealth have been working with clients on their investment management plans for many years, and are always happy to consult with you regarding your investment management needs.


We Can Help with Investment Management, Estate Planning, and More

There are few things that affect as many areas of your life as your wealth. Thinking about retirement, estate, or financial planning? Or will you use your wealth to provide for legacy or charitable purposes? Proper wealth management is what will make it happen. And an investment adviser is the right person to help.

At Saddock Wealth, our years of wealth management experience can help guide you toward financial prosperity. Schedule a meeting here, and we’ll discuss your best options.


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Investment Management Basics for a Successful Portfolio
Investment management is not just one thing. It's your portfolio, managing your assets, and much more. See our guide to what it entails.
Investment Management
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