Assets Under Management
What are we talking about when we talk about managing our investments?
If you are fortunate, you will reach a point where you have a thing that could reasonably be called a “portfolio.” That is, an investment (not bank savings) account that holds money you intend to spend in the future. That future may be far away if the spending purpose is supporting your retirement and you are young. It may be just a few years off if the purpose is a lifestyle change. Or the spending purpose of your portfolio may be right this very second if you have already retired. It may even be the case that the intent is for the portfolio to be spent by a future generation.
The point is this: Your investment portfolio is not a piece of art to hang on the wall and admire. It has a purpose and as such, it must be managed to achieve this purpose.
But what does “managing” an investment portfolio mean? What are the actual tasks that must be performed? Knowing exactly what is involved will help you decide if you need ongoing professional guidance or can confidently go it alone (perhaps with a bit of a push-start). Spoiler Alert: You can DIY more often than you might think.
Let’s start with two equally important basics:
Choosing the right type of investment account
Choosing the investments that go into the account
Obviously those two topics could be — and frequently have been — entire books on their own. But for most people’s practical purposes, the essential comes down to this:
How do I balance possible tax advantages with unfettered access to my funds?
What is my ability (and emotional tolerance) to take on investment risk?
Admittedly, there is a LOT to unpack there beyond the scope of this short blog. Understandably you may not feel up to performing the analysis on your own. But please understand that this is not quantum physics. The factors that go into making these choices are all perfectly comprehensible by the layperson. Even if you ultimately outsource the decision to someone else, it is imperative that you understand how that someone else is arriving at their conclusions.
Having now arranged the investments in your portfolio properly, what are your ongoing tasks? Well, if you are like me (and Warren Buffet, if I must name drop), there is not much else for you to do. Buy and hold. More specifically, there is no need to continually make investment decisions (what to buy, what to sell). The time to make a new decision about how to invest your portfolio is only when your goal/timeline for using your investments has changed. I’ll say it again in a different way: Changes in the market are not, in and of themselves, a reason to change your investment behavior.
Know the difference between being an investor and being a trader.
So, do you need to hire someone to babysit your portfolio? Despite all that I have said, many people will nevertheless only find comfort with the knowledge that a professional is watching their portfolio. That’s perfectly fine, but understand this: If they are doing it right, “watching” is pretty much the only thing that they are doing. It is an academically proven fact that an active investment manager will not, over the long term, outperform the market. (This is a natural point to remind you that active investment managers, including mutual fund managers, must be paid for their arguably quixotic efforts.) Many comprehensive financial planners will gladly tell you that managing investment portfolios is the least that they do.
The takeaway message that I want to leave you with is this: Hiring someone to “manage your money” is not at all a bad thing to do. But unless your finances are especially complex (Read: You are rich.), you may be selling yourself short. It is likely the case that with a modicum of education and guidance, you can manage your investments quite well on your own.
This is where I get to repeat my stock phrase: Knowledge is power.
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