Investment management refers to the process of handling various securities and financial assets. Investment management involves devising long-term and short-term plans to acquire and dispose of portfolio holdings. It also includes activities such as budgeting, banking, and tax services. Investment managers, also known as asset managers, are responsible for making clients’ money grow in order to help them achieve financial aspirations and goals. Investment managers also provide holistic advice on insurance, cash flow management, and estate planning. The main investment management services include stock selection, analysis of financial statements, asset allocation, and portfolio strategy.
The objectives of investment management vary from one investor to another. The main aim of investment management is to meet financial goals. Some investment options may involve lock-in periods and high liquidity. In this case, clients look for an ideal way to park their funds if they wish to save for a short period to create emergency funds or funding for personal development, thereby achieving their financial goals. Another objective of investment management is to minimize the tax burden. Apart from capital growth, investment managers have the incentive to evaluate the investments and respective income tax. In addition, investment management seeks to keep money safe to prevent wastage. Investment management helps protect hard-earned money from being eroded with time due to extravagance uses.
Although cash is perceived to be safer than shares, it is unable to grow in the long run without investment. Volatility in the stock market is not always associated with negative outcomes. It can offer investors an opportunity to buy shares at a lower price and get higher returns in the long run. Therefore, investment management helps in growing the client’s money so they can earn a high rate of return. Effective investment management creates an opportunity to explore the growth and potential markets to increase the value of client’s money.
Investments are meant to save money and ensure investors receive higher returns in the long run. However, investing also helps in achieving both short and long-term goals without much stress and trouble. Businesses focus on expanding after a certain period, which creates the need for financial stability. Similarly, individuals have different financial needs, such as education or buying a home that they seek to achieve by saving funds. Therefore, investing in bonds, stocks, or mutual funds helps individuals and businesses to achieve their financial goals.
Inflation is a significant threat to an investor because it erodes the current real savings and future returns. Rising inflation also chips away from the value of principal on the income securities. Investment management helps to outperform inflation and allows clients to grow their income without inflation challenges. For investment savings to grow over time, the rate of return after tax must be greater than the inflation rate. In today’s economy characterized by low interests, it may be challenging to find a savings account with higher returns than the inflation rate. Therefore, investment management is essential to help clients outperform the market inflation rate.
The majority of people approaching retirement depend on investment money as their regular income. Life after retirement becomes difficult since many people do not receive a monthly salary to sustain their daily needs. There is a range of investments that individuals can depend on, including bonds, equities, and investments, to provide regular income in the future after retirement. Individuals ensure effective investment management in order to cater to their needs after retirement.
The financial needs change over time, and emergencies are likely to occur. Investing sooner leads to faster growth of the investment money. Investment managers help clients solve financial problems, especially in a volatile market. With careful investment management, clients can tailor their portfolios to reflect their changing financial needs and priorities. For instance, individuals or businesses may be forced to use savings to solve emergency problems. Thus, effective investment management is essential to save enough money for emergency purposes.
Effective investment management helps in earning a steady source of income. Investments that improve income include stocks of companies that pay investors directly or fixed deposits that pay out regular interests. Investment management provides steady income for unemployed, employed, retired individuals consistently, increasing the possibility of economic stability in the society. Effective investment management also acts as supplementary income by providing additional income to boost the national economy.
People mainly save money to preserve it for future use. Investment schemes ensure that individuals do not outlive their savings. Government bonds and fixed deposits may not be effective in helping personal funds grow. Thus, capital appreciation can only result from effective investment management in either the short or long term. For businesses or individuals to make money grow, it is important to consider the best investment options that offer significant income returns. Although investment funds are associated with high risk, the return can be higher, leading to improved profitability and productivity.
Individuals paying high taxes for assets and investment properties receive a low income. Paying low taxes reduces the expenses incurred by an individual or a business when paying bills for different investment properties. Effective investment management acts as the best way to hold together assets and capital to ensure the tax burden is reduced. Companies pay more taxes through income tax on bank interest and capital tax gains during investments, which could both be reduced through effective investment management. Individuals living abroad may find assets that were tax-efficient in their home country highly taxable in their country of residence. Therefore, investment management ensures that investors reduce the tax bills resulting in more improved financial stability.
The stock investment represents ownership shares in an organization. Gaining profits or losses from a stock depends on the success or failure of the business, the type of stock, and the changes in the stock market. Stocks are considered important components of an investment portfolio that help in saving and growing money.
Bonds refer to forms of loans investors offer to a federal agency, government, or a corporation in exchange for interest payment plus the principal after the maturity date. Bonds include treasuries, municipal bonds, corporate bonds, and agency bonds. Investing bonds involves a great risk of losing money, especially when selling an individual bond before it matures. The bond price can also fluctuate with time depending on the market, increasing the risk of loss. However, bonds are considered effective types of investment because if given time to grow, they are sold at higher prices, thereby increasing the value of the investment money.
A mutual fund is a type of investment whereby investors pool funds into an investment and use them to buy other securities. ETFs are investment funds that hold the same securities in similar proportions as the stock market. Mutual funds offer professional management and diversification to ensure organizations and individuals grow their finances. As with other forms of investment, mutual funds involve the risk of losing money. This is because how mutual funds and ETFs perform in the past does not indicate how they can perform in the future. Mutual funds are considered a safe investment because they offer more diversification than purchasing individual stock.
Investors use annuities as saving plans to use funds in the future, especially after retiring. After buying an annuity, investors purchase insurance policies and receive periodic payments. Annuities may last for a predetermined period or until death. They may be linked to the insurance policy or the stock market. Annuities are considered to be low risk, and they make a good supplement to retirement plan savings instead of an integral source of money.