Investment Management

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Investment management is a broad term that refers to the buying and selling of investment. Though typically referring to the management of an investment portfolio and the trading of securities within that portfolio, its definition may also include banking, budgeting, and tax management duties. Any individual with an investment portfolio or professional may engage in investment management.


Investment management is a broad term that refers to the buying and selling of investment. Though typically referring to the management of an investment portfolio and the trading of securities within that portfolio, its definition may also include banking, budgeting, and tax management duties. Any individual with an investment portfolio or professional may engage in investment management. Examples of investment management styles are “passive,” “active,” “aggressive,” or “conservative.” Thus, “investment management” can mean many things in many different settings.

However, according to study performed by the Boston Consulting Group in 2013, the assets managed professionally for fees reached a high of $62.4 trillion in 2012.  The study projected that figure to grow in coming years. Therefore, investment management is an exceptionally important part of the American economy, and understanding what this term truly encompasses is even more important to the casual investor and professional alike.

Investment Managers Have the Time and Knowledge Individual Investors Often Lack

While many investors have done exceptionally well on their own, many do not have the time or expertise to effectively engage in the daily management of a portfolio of investments. For example, at some point in their lives many people will invest in a 401K account at work. This is a form of managed investment designed to remove virtually all effort for the investor while still securing a return. Another example is mutual fund investing, in which an investment manager runs a fund based on guidelines set forth at the time of buying into the fund but otherwise requiring little or no additional input from the investor. Indeed, behind any active mutual fund usually lurks a team of investment and support managers, picking stocks, following trends, and making money for the fund’s investors. Thus, investment management is an excellent way for one to grow one’s own money while not relying on one’s own limited time and knowledge to do so.

Investment Managers Can Balance Risk and Rewards for Their Customers

One of the biggest advantages to professionally managed portfolios over self-managed portfolios is risk balancing. Most investment managers have a variety of funds with multiple investors in each. This allows for a balance of aggressive growth investments alongside ones that are stable, but lower yielding. This practice allows for experimentation and investment optimization in ways that individual investors would likely be unable to do.

Sometimes called a “pre-cut portfolio,” these managed investments measure stock vs. bond funds against the investors age, willingness and ability to accept risk, then—using an agreed upon formula—an investment manager puts the customer’s money into investments matching that profile. The portfolio adjusts over time to match each stage of an investor’s life (more aggressive earlier in life and more conservative closer to retirement).

Taking this idea to an even higher level, many investment firms now offer so-called “set it and forget it” options, whereby customers select target dates for withdrawing their earnings from an investment (often at the time of retirement).

Investors must also consider the cost of a professional managing his or her portfolio.  Investment managers charge various fees. These often take the form of both management fees as well as commissions from trading assets. While the overall return on investment usually outstrips the money lost to these fees by many fold, some investors have stayed away from managed investments for this reason. Of course, these self-directed investors lose the benefits of the manager’s time, knowledge, and access to other investors by which to moderate his or her own gains and losses.

Types of Managed Investments

Several forms of managed investments are quite common and well known to most investors. For example, retirement funds or pension plans are an exceptionally common form of managed investment. Mutual funds are also quite common. Less common are individual wealth management programs tailor-made to an individual investor’s wants and needs. These usually appeal to wealthy individuals who wish to ensure their legacy for future generations while also providing a comfortable life for themselves.

The types of investments held by these options can vary widely, too. Some may invest more heavily in stocks and commodities, while others may trade primarily in currencies or bonds.

Bond investing is actually quite common in managed investments, thanks primarily to their relatively stable nature. While the bond markets host many different types of bonds, it is quite common to see a mix of corporate bonds, government bonds, municipal bonds, and savings bonds in managed investment portfolios.

Investment Management Means Many Different Things in Various Settings

Thus, the term “investment management” can refer to a very wide array of professional investment services. Of course, the primary meaning involves advising clients about the best options for their financial futures. It can also be a means of balancing risk and automating investments, but it can also be taking bigger bets that an individual investor might fear doing alone. It can also refer to building a portfolio of almost any kind of investment, like stocks, bonds, commodities, and much more.

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