What is Investment Management?
Investment management refers to buying, selling, and management of shares, bonds, financial and other assets. Management consists of long-term and short-term strategies for buying and selling of portfolio. It is generally used to manage, selling and buying of investments within a portfolio to achieve the desired objectives. It is also known as portfolio management, money, or wealth management.
Basics of Investment Management
Savings and investing the same are a part of our daily life. So Investor needs proper planning to invest these funds. As money grows, proper planning requires which is a part of portfolio management which includes financial planning services too. The investor will get higher returns with a balanced risk with the proper management of his funds.
The responsibility of portfolio managers is to oversee the benefits of clients. The client can be individuals or institutional investors such as the government, insurance companies, etc.
Investment Management Includes
1) Analysis of financial statements
2) Keep a track of existing investments
3) Making portfolio strategy and its implementation
4) Allocation of asset
5) Planning of finances and advisory
6) Management of gold, silver, commodities, etc.
7) Matching of investment to plan retirement
8) Maintaining the company’s tangible and intangible assets
Before the Covid-19 pandemic, the investment management industry was growing but has started decreasing after the pandemic.
What are Investment Management Firms?
Investment management firms have the responsibility to deal, settle, and preparation of reports for clients. It also does the work of internal audits and research of individual or class assets. Fund management firms having $ 25miillion of assets or providing services of such amount have to get themselves register with the Securities Exchange Commission (SEC). Registration with SEC means that they accept their fiduciary duty towards their clients. Firms managing less than $ 25 million get themselves registered only in their states of operation.
Benefits and losses of Investment Management
The investment management industry provides very high returns but it has an element of risk also. The profits of an investment Management Company depend upon the market behavior and market valuation. A reduction in the price of stocks/bonds could lead to a reduction in the revenue of the firm.
Few benefits are:
- This industry has made the professional analysis of the management of investment possible.
- It helps in protecting the portfolio during hard times.
- It can beat the market.
Few losses are:
a) These firms charge a high amount of fees.
b) Profits of these firms depend on the market fluctuations.
Examples of Investment management firms
About 40% of the global assets are controlled by the top 20 investment management firms. Few leading investment management firms of US are:
- Bank of America Global Wealth & Investment management
- Morgan Stanley Wealth Management
- J.P Morgan Private bank
How much investment management work?
Fund advisor assessment needs and risk profile of the individual client and recommends the appropriate investment.
Asset allocation: The common division is stock, bond, real estate, and commodities. Portfolio managers have to decide the allocation of funds is among these. The performance of the fund will depend upon the allocation of money in different funds. The skill of a successful manager depends upon the creation of successful securities allocation which can perform better than other securities.
Long-term returns: Fund managers have to balance the holding period and long-term return of different assets. As equities are riskier than bonds and bonds are riskier than cash.
Diversification: It will mention the percentage of funds that will be invested in each stock or bond etc. The theory of portfolio diversification was given by Marowitz. It includes a correlation between returns and the liability of securities.
Fundamentals of Investment management
Investment involves buying securities that can give high returns. Before investing following points need to be considered:
a) Reason for investment: There are several reasons for investment which are:
- Investing gives the best security for the future.
- Investment in securities gives a higher return than saving bank account.
- Individuals can earn up to 10% to 15% return if properly invested with the help of investment managers.
Before investment, an investor must decide the reason for investment, returns expected of investing, and understanding risk and returns associated with the securities.
b) Strategy for investment: There should be a proper plan which can give maximize the profit while stabilizing the risks. Investors must identify areas to invest in and earn maximum returns. Investment managers work towards forming investment strategies.
c) Proper research: Investor management requires proper research of the market through news, journal, the internet, etc.
d) Medium of investment: Investing in diverse mediums reduces the amount of risk. As profits from one medium can be used to offset the losses of another medium.
There are two basic choices investor has:
- Stock: Investors can buy different types of stocks having unique risks and return.
- Bond: Investing in bonds helps in reducing the risk caused by stock.
Areas of Investment Management
Investment management includes investment in areas of finance and business management.
Investment management in finance: Under this investments are made in either tangible or intangible assets. Capital budgeting is the technique used to make the proper investment decisions.
Investment management in business management: Under this securities are purchased such as stock, bonds, and commodities, etc. Under this investment is done to yield higher results.
Philosophy, process, and people
The dependency of success of portfolio depends upon these three factors:
a) Philosophy: It includes the belief of the investment firm. The investment of the investment manager in growth shares or value shares, the timing of investment, investment based on market research or not, etc.
b) Process: It is the way by which the philosophy of the firm is implemented. It tells us how the manager decides to buy or sell the securities.
c) People: Fund managers and staff of investment management firm. No of people, the way they are chosen, the strength of the team, staff turnover, performance record, etc.
When is Investment Management helpful?
It is helpful when:
- It is difficult to make investment decisions by itself.
- To deal with complex issues like retirement, inheritance, tax saving, etc.
- During a need of an investment manager to keep the balance of all the portfolios.
- Management of cash flows, financial planning or debt management, etc.
Context and Application
The education of investment management is needed to become investment managers by pursuing Chartered Financial Analyst (CFA), Certified International Investment Analyst (CIIA), Master in Business Administration (MBA), and Chartered Investment Manager (CIM).
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