For current and prospective investors in today’s diverse marketplace, there are a number of ways to manage your strategy and holdings. Two of these are investment management and asset management. If you’re unfamiliar with either of these, you’ve come to the right place. In this blog, we’re going to break down the two, including the scope and what an asset manager vs. an investment manager’s role will look like.
Because both strategies come with inherently unique paths to cultivating and growing wealth, we’ll also be examining the nuances between each that may align better with certain financial goals and aspirations. So, whether you’re an individual looking to invest for the first time, an individual looking to better manage your current financial investments, or an institution with vast resources, this blog will help shed light on which strategy may be the better fit for you. To start, let’s take a look at investment management vs. asset management.
To kickstart the investment management vs. asset management analysis, let’s first focus on the former. By definition, investment management is the handling of financial assets and other investments. It is important to keep in mind that this management strategy does not simply focus on buying and selling stocks, for example. It could also include strategies for budgeting, taxes, and more as well.
At its core, investment management is the professional art—and science—of managing a portfolio of securities, such as stocks and bonds, to ultimately achieve an investor’s specific goals. The primary goal is wealth accumulation through strategic buying, selling, and holding of these securities based on comprehensive market research, trend analysis, and a deep understanding of global economic factors.
Some of the pros you’ll find with investment management are the ability to create tailored strategies to your individual needs and goals and active management from your investment manager. At BIP Wealth, we focus on holistic wealth management and follow guiding principles such as expert insights and human connection, transparency and accessibility, and intelligent forecasting to help our clients navigate the road between risk and reward. To learn more, be sure to check out our holistic wealth management services page.
Asset management, though sometimes used interchangeably with investment management, encompasses a much wider range of wealth management. Think of it this way: Investment management can be considered a part of an asset management strategy, but asset management compared to investment management extends to a myriad of other tangible and intangible assets, including real estate, commodities, intellectual property, and sometimes even assets like artwork or vintage cars.
At its heart, asset management is also about understanding an investor’s unique needs and goals and focusing capitalizing on them in the long term. Because it encompasses so many more financial holdings, asset management vs. investment management may focus more on sustained long-term growth rather than short-term gains in the stock market, for example.
You’ll find that many of the pros to asset management are similar to investment management. Both asset management and investment management tend to give investors a much more holistic wealth management experience. Additionally, asset management may give investors access to alternative investments such as private equity and hedge funds. At BIP Wealth, our team of experienced financial advisors works to give our clients access to financial wealth opportunities that have historically been reserved for the ultra-wealthy.
Both asset managers and investment managers critical focus is on creating wealth for their clients. Now, there are some differences in the roles each takes on. Investment managers tend to focus specifically on the domain of stocks, bonds, and mutual funds. Their day-to-day may be more centered around market research, trend analysis, and portfolio balancing.
Asset managers, on the other hand, operate on a much broader canvas. They may put more focus into portfolio optimizations, strategizing with clients on the acquisition of, maintenance, and even the sale of a wide range of assets—from stocks to homes to luxury goods.
To put it simply, while both are stewards of wealth, their focal points differ. The investment manager is a craftsman, meticulously sculpting portfolios, while the asset manager is the mastermind, orchestrating an all-encompassing wealth strategy.
Because the journey of wealth management is a personal one, deciding which strategy may be right for you will take time—and be dependent on a number of factors. For individual investors who are looking to grow their wealth primarily through stocks and bonds, investment management may be the right way to go. For those who already own a high number of valuable assets, asset management may be the better choice. For larger organizations and businesses, the expansive and strategic purview of asset management also tends to align well, ensuring that assets are managed and grown cohesively over extended periods.
It is important to first consider your risk tolerance, as this can play a significant role in which strategy is right for you. If you prefer a more hands-on, active strategy with frequent adjustments, investment management’s active approach might resonate. Conversely, if you’re looking at long-term stability and diversified risk, asset management, with its wider asset base, might be more fitting.
If you have any questions or want to speak to one of our financial advisors, don’t hesitate to contact us. You can also check out our Resources to learn more about topics in the financial space, including portfolio vs. wealth management and why the Roth IRA is the “holy grail” of tax-smart investing.
What is the difference between asset management and investment management?
At its core, the difference between investment management vs. asset management is the scope of what is managed. Investment management tends to focus solely on stock and bonds while asset management can encompass a wider range of assets, such as homes and luxury goods.
Is an investment manager the same as an asset manager?
No. While the two share a similar role, asset managers tend to operate on a much broader canvas, including the management of a much wider range of financial assets, compared to investment managers.
Is asset management better than investment management?
It depends on what your financial goals and needs are. For individuals and organizations with many financial assets, asset management may be the better option. However, for individuals looking to start a stock portfolio, investment management may be the better choice.
This communication contains general investing information that is not suitable for everyone and is subject to change without notice. Past performance is no guarantee of future results and there is no guarantee that any views and opinions expressed will come to pass. The information contained herein should not be construed as personalized investment advice, tax advice, or financial planning advice, and should not be considered a solicitation to buy or sell any security. Investing in the stock market and the bond market involves gains and losses and may not be suitable for all investors. Indices are not available for direct investment.
If you’ve ever gone through the financial and investment planning process, you might remember that it took some effort. But you might look back at that investment in time and feel some sense of satisfaction that you did something for yourself and your family. Unfortunately, investment planning may be extremely dangerous to your financial health. Here are the top five reasons why:
How many working people can look back a decade and say that they would have accurately predicted their current income level? Fortunes change, people lose their jobs, people get promoted, and the future is unknown for most of us. Because of this, future earnings become one of the biggest financial planning mistakes people may make. If your financial plan assumes you have a healthy income for decades into the future, but that doesn’t happen, do you expect your retirement lifestyle to be the same? Anyone more than ten years from their planned retirement needs to understand why a certain income figure was used in their plan, and they might want to make their income estimates extremely conservative just to test for problems with their plan. A good advisor may even run more than one plan, using different income levels, to examine the sensitivity of the plan to this input. Another technique used for people approaching retirement is to assume that all income ends in the current year. This helps establish what your “worst-case scenario” may look like and every year of additional income just makes things better.
Life expectancy is a tricky thing for anyone to predict. The best investment planning probably assumes a very long life expectancy, because outliving your money is the biggest risk most people face. Avoiding “superannuation” is the main motivation for many people to engage in investment planning, which is why some planners may suggest using a life expectancy that you only have a 10% chance of achieving. This doesn’t mean that this estimate is more accurate, it simply provides a more prudent way to think about how to plan.
If your investment planning doesn’t address the concept of investment expenses, then you may need to ask some questions. Another big financial planning mistake you can make is not taking into consideration what you’re paying in fees and even taxes on investments. For example, your stock broker may start to crank out financial plans that use index returns to predict portfolio returns. But the reality may be that your investment accounts become full of high-cost mutual funds, annuities, and other fee-laden investment products that may not be able to quickly adjust to market shifts. It isn’t unheard of for an investor to pay more than 2% in total investment expenses (and sometimes much higher) while relying on a financial plan that assumes there are zero investment expenses. For a $1 million portfolio, that’s $20K per year that doesn’t compound. If you don’t think investment expenses are a big deal then consider this: at the end of 2017, the average annual return of the MSCI ACWI IMI Global Equity Index for the prior ten years was only 4.97. And the Bloomberg-Barclays U.S. Aggregate Fixed Income Index return over that decade was only 4.01%. If your portfolio was paying an extra 2% in fees then, depending on your allocation, you may have barely kept half of your returns. At the end of the day, your investment expenses really do matter.
Taxes are boring, yes, so let us tease you with this idea: if you own an actively traded mutual fund, and it realizes short-term capital gains (from selling stock it owned less than a year), then the fund has to distribute those gains to you along with a tax on the investments. Your investment planning advisor may not see it coming, and there may be little you can do to stop it. To make matters worse, the distribution that hits your account will now be taxed at your highest marginal rate (because it’s a short-term gain). On top of this, distributed short-term capital gains cannot be offset with realized capital losses. So, if your super stock-picking mutual fund was up 20% in a big year, but sold most of its holdings to reposition, maybe you had 10% distributed to you at a tax cost of around 4-5%. Suddenly that terrific 20% turns into only 15%. The big pothole here is when a fund has a down year, but still sells some winners, and you pay investment taxes on a negative return! It’s happened before and it will surely happen again. Will you make this common financial planning mistake?
Some investors won’t need Social Security to have a terrific retirement, but for most of us, it will at least play an important role. And here’s the thing: Social Security has its risks. It’s not hard to be cynical about this program run by the Federal Government, but in the interest of giving respect where it’s due, the Trustees responsible for running this giant entitlement program write some of the best financial reports you will ever read. They have been telling us for years that there are major Social Security risks ahead, and it’s getting closer to reality. In the 2023 Annual Report, it was estimated that in all likelihood the program will exhaust itself by 2033. At that point, they estimate, benefits will have to be cut by 23% to match annual tax collections. We can’t know how our current and future politicians will address this problem, but if your investment planning isn’t assuming a cut to your currently legislated benefits, you may be counting on money that you will never receive.
At BIP Wealth, we focus on holistic wealth management to help our clients fortify long-term success and avoid the common financial planning mistakes you read about above. To learn more about our services, check out our What We Do page. If you’d like to get in touch with one of our wealth advisors, feel free to contact us!
How do I estimate future earnings?
Although it is very difficult to accurately predict your future earnings, it may be helpful to create more than one investment plan to determine what your financial situation could look like in different scenarios.
What is superannuation?
Superannuation refers to a retirement savings system in which individuals set aside a portion of their income during their working years to fund their retirement. It is commonly known as a pension or retirement fund.
What is an investment expense?
Investment expenses refer to the costs associated with managing and maintaining an investment portfolio. These could include advisor fees, taxes, and operating expenses.
When do you pay taxes on stocks?
Taxes on investments like stocks are typically realized when you sell them for a net gain or loss.
Is Social Security at risk?
In a recent estimation, it was said that Social Security could exhaust itself by 2033, resulting in a 23% benefits cut.
This communication contains general investing information that is not suitable for everyone and is subject to change without notice. Past performance is no guarantee of future results and there is no guarantee that any views and opinions expressed will come to pass. The information contained herein should not be construed as personalized investment advice, tax advice, or financial planning advice, and should not be considered a solicitation to buy or sell any security. Investing in the stock market and the bond market involves gains and losses and may not be suitable for all investors. Indices are not available for direct investment.
