Tue. May 30th, 2023

investment management

Investment Management 101

Investment management is the process of deploying capital in a variety of financial instruments and other assets to meet specific investment goals. This involves understanding a client’s risk tolerance, savings objectives, time frame and market conditions.

Professionals use their experience and tech-powered analysis tools to suggest investments. However, there is always the possibility that individual assets may not follow predicted trends or that a managed portfolio might perform differently from its own projected performance.

Investing in equities

Equity investment involves the buying of shares in a company. These shares represent ownership of a company and may provide capital to the firm to help it grow and expand. If the value of the share increases, the shareholder can sell it for a profit.

Investing in equities is a great way to achieve long-term goals like retirement and children’s education. However, it is important to remember that equities are high-risk investments. They can decline in value if a company fails, so investors should be aware of this risk and work with a financial advisor to create a strategy that helps them achieve their goals.

In order to maximize returns, investors should diversify their equities portfolios. This means balancing exposure to domestic and international companies. This could help reduce volatility and improve overall portfolio performance.

Investors also need to be disciplined about staying invested through market ups and downs. If they sell their stocks during a downturn, they can lose out on the potential for strong returns that come with rebalancing.

Many investors are naturally prone to buying stock when it is high and selling when it is low, which is referred to as “buying high” and “selling low.” This can have a negative impact on a portfolio’s long-term return potential.

Alternatively, they can adopt a more diversified investment approach by investing in an equity fund. These funds are managed by experienced professionals and have strict reporting requirements.

In addition, they often have a lower cap requirement than other types of investments. This makes them more accessible to investors from a wide range of backgrounds. These funds can also be used to build a retirement plan that is stable and secure.

Investing in bonds

Bonds are a type of investment that seeks to generate income. They can also be used to diversify a portfolio, preserve capital or provide opportunities for capital appreciation.

Bond funds, which are similar to stock mutual funds, allow you to invest in a pool of bonds and let a professional manage your money. Fund managers research the creditworthiness of issuers, analyze the market and evaluate individual security prices before making investment decisions.

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Some types of bond mutual funds are diversified across bonds from a broad range of issuers, while others focus on a narrower slice of the market. Regardless of the approach, understanding your risk tolerance, investment time horizon and financial goals is essential for deciding how many and what type of bonds to include in your portfolio.

Unlike stocks, bonds generally have fixed principal values (also known as face or par value) that are repaid at maturity. However, these values can fluctuate depending on interest rates and other factors in the secondary market.

Another key factor is a bond’s credit rating, which is determined by an agency like Standard & Poor’s or Moody’s Investors Service. Bonds with low credit ratings have greater risk of default, which can lead to the loss of your investment.

Tax-exempt bonds, such as government and municipal debt, are considered safe investments that pay interest and principal without being taxable. They also offer an attractive hedge against economic slowdown, which can be a negative for stocks and other assets.

Bonds can be purchased as individual securities or through a bond mutual fund or ETF. Although both methods have their advantages, a bond fund may be more appropriate for investors who want to take advantage of regular income payments and who don’t expect to hold the shares for long periods of time.

Investing in real estate

Investing in real estate is one of the most popular ways to diversify your investment portfolio. It can help reduce volatility in your overall portfolio and increase asset appreciation. However, it is also a more risky type of investment than stocks or bonds.

Whether you’re looking to buy your first rental property or you’re a veteran investor, investing in real estate is a smart way to grow your wealth. But if you’re new to the world of real estate, it can be difficult to figure out which investments are right for you.

You can invest in real estate in a number of different ways, including through REITs, real estate funds and online platforms. REITs are publicly traded companies that own and operate real estate, and they allow you to make real estate investment without having to personally own or manage the properties.

REITs can be a great choice for investors who don’t have the capital to invest in commercial real estate on their own. These REITs are transparent about their earnings and expenses, so you can easily get a good sense of how much you stand to earn.

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Another way to invest in real estate is through a real estate crowdfunding platform. These sites connect investors to real estate projects, allowing them to earn cash flow from rentals without having to own property themselves.

While you can invest in residential rental properties, you’re more likely to find success with commercial property. Commercial properties are often more lucrative in the long run, as they usually rent to businesses and have higher revenue potential.

Real estate is a complex type of investment, so it’s important to consider the pros and cons before you jump in. It’s not for everyone, but it can be a useful investment option if you have the time and energy to dedicate to the process.

Investing in commodities

Commodities are raw materials that are used in manufacturing consumer goods and can be a good way to diversify an investment portfolio. They can also help hedge against inflation.

There are many ways to invest in commodities, including investing directly in the product itself and buying futures contracts or ETFs that track a specific commodity. You can also buy shares in companies that produce the product or use the product as a raw material for their products.

Unlike stock and bond investments, which can be valued by examining forecasted earnings and dividends, commodities are typically unreliable in predicting returns. As such, they can be a risky investment, especially in volatile markets.

Some of the risks involved with commodities include volatility in prices, economic and industrial factors, weather conditions, and government policies. For example, oil prices may be impacted by a global economic slowdown or disruption to supply and demand.

However, some investors believe that commodities can provide superior returns to share-based investments in times of market turmoil and are considered a viable option for long-term investment management. In fact, research firm SummerHaven Investment Management found that between 1900 and 2018, commodity returns beat cash by an average of 5.2% a year.

There are many ways to invest in commodities, but the most common is to purchase futures contracts. These allow large businesses and institutions to pre-purchase a certain amount of a commodity at a future date in order to avoid the risks associated with purchasing the raw material at the spot price. This is a useful strategy for companies that need a lot of the product, such as airline companies and trucking firms. In addition, a number of commodity-related mutual funds and ETFs offer direct exposure to the performance of commodities, which makes it easy for investors to add this asset class to their portfolios.

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Investing in alternative investments

Alternative investments include a broad range of assets outside of the traditional investment categories of stocks, bonds, and cash. They include everything from gold and other precious metals to cryptocurrencies like Bitcoin.

They can be a valuable addition to a portfolio, allowing investors to diversify their risk and increase returns. However, they come with higher risks and may not be appropriate for all investors.

Investing in alternative assets often requires more expertise than investing in traditional asset classes. This is because these investments don’t fall under the same regulations as stocks, bonds, and cash, and they can also be more complex.

These alternative assets also have less transparency than traditional asset classes, making it more difficult for consumers to assess the value of them. It also can be harder to determine which assets have the most potential for growth or volatility.

The complexity of these investments can be a challenge for fund managers, too. This is because the information aggregation and analysis they need is usually harder to do because it’s coming in a variety of bespoke formats, and from different sources.

In addition, some alternatives have extremely complicated valuations that are difficult for many fund managers to handle. This can result in a lot of manual work.

Despite these challenges, the popularity of alternative investments has grown in recent years. They have become more popular for institutional and high net worth investors, and they’re a great way to add more variety and diversity to a portfolio. They’re also a good option for individuals who are interested in investing more actively, and they can be a great way to protect against inflation. Whether you’re an investor or a financial professional, understanding the basics of investing in alternative assets can help you refine your investment strategy and maximize the value of your portfolio.

Jeffrey Augers
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By Jeffrey Augers

Jeffrey Augers is a highly skilled and experienced financial analyst with over 12 years of experience in the finance industry. He has a proven track record of delivering exceptional financial insights and recommendations to clients, empowering them to make informed decisions and achieve their financial goals. Jeffrey holds a Bachelor's degree in Finance from the University of Michigan, and an MBA from the Wharton School of Business.