For high-net-worth individuals and families, investing requires a different approach than the traditional allocation of assets that are diversified by geography and sector. Rather, high-net-worth investment management requires attention to risk, liquidity needs, taxes, and cash flow requirements. Investment management is a core aspect of financial planning and it is key to growing your wealth. Understanding investment management is, therefore, indispensable for a business owner who also wants to create a successful investment portfolio. When it comes to investment management for business owners and entrepreneurs, there is often a clash in perspective that needs to be overcome. Investment managers generally operate in a different paradigm from that of a successful entrepreneur. For one thing, entrepreneurs are more inclined to invest money and energy in one or two areas in which they have experience and expertise. On the other hand, the investment manager is trained to diversify and spread risk across a wide variety of funds and sectors. The business owner takes a focused, often personal view, while investment managers are more holistic and wide-ranging in their approach. The successful management of a business investment portfolio – or an entrepreneur’s private portfolio, for that matter – will require these opposing worldviews to be reconciled as far as possible. When it comes to successful investment, the narrow focus that leads to a business’s success, is not the best approach. Diversification and flexibility are key.

What is Investment Management?

Forming a central part of all high-net-worth wealth management plans, investment management optimizes returns while reducing risks. It entails the oversight and administration of investment portfolios to ensure that they always align with the investor’s goals, in line with prevailing market conditions. Unlike business owners, who hone their focus on opportunities in their own market, investment managers look for promising investment opportunities wherever they can find them. The emphasis is on putting money into areas of potential growth, regardless of the sector in question.

The Investment Management Process

When you, as a business owner, work with an investment manager, you will need to trust that their knowledge of financial markets and broad market perspectives are the key to growing your wealth – counterintuitive as it may seem at first. Your wealth manager will not concentrate on your core business at all. Instead, they will consider your goals for financial growth, and decide on the best spread of investments that will help you reach those goals. The process consists of the following steps:

  1. Goal setting: The investor and the wealth manager work together to set definite goals, based on the former’s aspirations and objectives, taking their appetite and tolerance for risk into account. Risk and reward must be carefully balanced, and the wealth manager must work to ensure that this balance is maintained as time goes on and market conditions change.
  1. Asset allocation: Once financial goals are set in place, funds can be allocated to the appropriate mix of assets, such as fixed income, real estate, equities and commodities. The goal is to spread risk as safely as possible while also maximizing potential returns.
  1. Security selection: Once the asset allocation strategy is decided, the investor and the wealth manager will select specific securities within each asset class.
  1. Monitoring and rebalancing: Once funds are allocated to specific assets and securities, the wealth manager will carefully monitor the portfolio to see how it is progressing in light of the investor’s desires and changing of market conditions. When markets undergo significant changes, the wealth manager will rebalance the portfolio to ensure that risk is offset and gains are maximized.

Effective Investment Management Strategies

The best investment management strategies incorporate a variety of tools, approaches and instruments, employed to achieve maximum growth for a specific investor. That being said, each investment plan will employ one or more of the following investment management strategies:

  • Diversification: The spread of investments across a wide selection of assets, securities and instruments, so as to minimize risk.
  • Asset allocation: With diversification in mind, the investor selects a certain spread of asset classes across which to spread the investment.
  • Active vs. passive management: Investors can decide whether to take an active or passive approach to the management of their portfolios. Active management involves the direct intervention and monitoring of a wealth manager in a varied portfolio of assets. Passive investment management works indirectly through index funds or ETFs.
  • Long-term perspective: Again, except in very rare circumstances, approaches to investment always come from a long-term perspective.
  • Risk management: Growing wealth involves a careful balancing of risks.

Hopefully, you have gained a better understanding of investment management. Now, let Momentum Wealth help you manage your investment portfolio. Contact us today to begin working with a strategic tax planning advisor.