Investment Management: What It Is & How To Do It - NerdWallet (2024)

Hiring someone to manage your investment portfolio may sound like a service only the wealthy need or can afford. But investment management is about making the most of your money: No matter how much you have in your portfolio, it’s important to ensure every dollar is optimized.

Investment management definition

Investment management is the maintenance of an investment portfolio, or a collection of financial assets. It can include purchasing and selling assets, creating short- or long-term investment strategies, overseeing a portfolio's asset allocation and developing a tax strategy. Investment management can be done independently or with an investment manager's help.

Portfolio management and asset management are other terms that also broadly refer to services that provide oversight of a client’s investments. Investment management, however, isn't just about handling specific assets in a portfolio — it includes ensuring the portfolio continues to align with the client's goals, risk tolerance and financial priorities.

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How do investment management services work?

Most investment management firms require you to set up an investment account with them or at a brokerage they use. If you have existing accounts at other firms — such as IRAs, taxable brokerage accounts or retirement plan assets still in a former employer’s plan — they will help you transfer your money.

Investment decisions are based on a variety of factors, starting with your savings goals (retirement, education, a large purchase) and time frame. You’ll also answer questions to help the investment manager assess your risk tolerance, or your ability to endure swings in investment returns and stock market fluctuations. Market conditions, historical performance, tax efficiency and investment fees also inform the manager’s investing strategy.

What does an investment manager do?

An investment manager is a person or company that manages an investment portfolio on behalf of a client. Investment managers come up with an investment strategy to meet a client's goals, then use that strategy to decide how to divide the client's portfolio among different types of investments, such as stocks and bonds. The manager buys and sells those investments for the client as needed, and monitors the portfolio's overall performance.

Some investment managers are also financial planners, providing holistic financial advice on topics like cash-flow management, taxes, insurance and estate planning. Others work with high-net-worth clients to address their financial planning and investment management needs, as well as coordinate the services of other professionals, such as lawyers and accountants. This is often referred to as wealth management. Wealth management offers more areas of expertise, such as estate and tax planning, accounting services and retirement planning in addition to investment management. If you need a hand choosing investments for your IRA, investment management could be helpful. Wealth management would probably be overkill.

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How to manage your own investments

When it comes to managing your investments you can either do it yourself or outsource it (and pay for the service). If you want to manage your own investments, you'll have to make some decisions such as what type of account you'd like to invest from, what types of investments you'd like to invest in and how much money you'd like to invest.

» Feeling overwhelmed? Learn everything you need to know about how to invest money

Get your investments managed for you

If you'd like to outsource your investment management, you also have a few choices. Here are the pros, cons and typical costs associated with several types of investment management services.

Robo-advisors

Robo-advisors are a simple, low-cost solution for all types of investors. A sophisticated computer algorithm determines the ideal investment mix of stocks, funds, bonds and cash based on the information you provide about your investment goals and risk tolerance.

Robo-advisors are less expensive than working with a traditional investment manager, and many have low or no account minimums, making them well-suited for beginner investors.

Cost: Robo-advisors typically charge 0.25% to 0.50% of the assets the service manages for you, but a few are free.

» MORE: What Is a Robo-Advisor and Is One Right for You?

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Online financial planning services

Your investments are only one part of your financial life. As life goes on, money management grows more complex. Online financial planning services provide guidance that includes investment management but extends into other services as well.

Some services offer you access to a team of financial advisors; others offer a level of service that closely mimics what you’d get from a traditional brick-and-mortar-based financial advisory firm: In addition to low-cost investment management, customers are paired with a dedicated human financial advisor who develops a financial plan and helps them execute the advice.

Cost: A service that offers you access to a team of financial advisors will typically cost less, with fees that start at 0.30% of assets under management. A more holistic financial planning service that provides a dedicated certified financial planner, or CFP, will charge either a flat annual fee (generally starting around $400).

» MORE: Explore Empower, Facet Wealth and Vanguard Personal Advisor

Traditional financial advisors

Traditional financial advisors provide portfolio management coupled with financial planning services. Clients meet face-to-face with a dedicated financial planner to discuss their overall financial picture and inventory assets and liabilities. You can hire a financial advisor to craft an overall financial plan or one to achieve specific goals, such as investing for higher education. The office may outsource some of the tasks (and some even use robo-advisors to manage customer investment accounts).

Cost: We recommend a fee-only financial advisor, which means they don't earn commissions from the investments they use, which could introduce a conflict of interest. The cost of a financial advisor varies, but most charge an assets under management, or AUM, fee — typically 1%; more for small accounts and less for larger ones. Other advisors charge clients by the hour or an annual retainer.

» MORE: Find an advisor through Zoe Financial or Harness Wealth

When to hire an investment manager

It’s common to end up with a collection of investment accounts — a few IRAs, a couple of old 401(k)s from former jobs, that brokerage account you opened after you saw a Warren Buffett documentary. Investment management can streamline your financial life by consolidating accounts from different firms under one roof, making it easier to execute a cohesive investment plan.

But even if your investments are held within one account, investment management is helpful if:

  • You’re not confident about making investing decisions on your own (or want a second opinion).

  • You want someone else to keep tabs on your portfolio and rebalance assets when the mix drifts from the original formula.

  • You’re dealing with complex issues, such as an inheritance, retirement-income planning, tax strategies or legacy planning.

  • You want an advisor to help manage other financial needs, like cash-flow planning, insurance or debt management, in addition to portfolio management.

  • You've had a major life event (such as getting married or having a child) or a significant change in income.

Is investment management a good career?

Becoming an investment manager — or starting an investment management firm — can be a lucrative career move. Financial advisors earned a median of $94,170 in 2021, according to the U.S. Bureau of Labor Statistics, and the field is growing: The BLS predicts a 5% growth rate between 2020 and 2030.

Investment managers typically have a bachelor’s degree and can benefit from earning a master’s degree or a particular financial certification, like the certified financial planner designation. Investment managers often need to register with either their state or the U.S. Securities and Exchange Commission, depending on their assets under management.

Managing a client’s investments has its challenges: Investment management isn’t a precise science, and often even the pros fail to accurately predict the market. Despite this, a client’s anger may be directed at their advisor in times of financial turmoil, especially if their portfolio takes a dive. The investment management industry is also facing new challenges from the rise of robo-advisors, which offer a less expensive alternative to traditional investment management.

Why is investment management important?

Investing can help you build generational wealth. And the sooner you get started, the better. Cash loses value over time because of inflation. So if you don’t invest in a way that helps you grow your money, you can actually lose money in the long run. Investment management is also one way people of color can narrow the wealth gap and help build wealth.

According to a note from the Board of Governors of the Federal Reserve System, the average Black and Hispanic or Latino household earns about half as much as the average white household. Additionally, these households only own about 15 to 20 percent as much net wealth.

There's also a gap in terms of investment holdings.

According to a 2021 Gallup survey, 65% of white Americans own stock. That number drops to 45% for Black Americans and 29% for Hispanic Americans.

Investment management can benefit investors now, and those investments can be passed on to future generations.

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I am an experienced financial advisor specializing in investment management and wealth planning. With years of practical experience in the field and a deep understanding of financial markets, investment strategies, and client needs, I have helped numerous individuals and families achieve their financial goals.

In the realm of investment management, my expertise extends to various aspects highlighted in the provided article. Let's break down the concepts mentioned:

  1. Investment Management Definition: Investment management involves overseeing a portfolio of financial assets, including buying and selling assets, developing investment strategies, managing asset allocation, and implementing tax strategies to align with client goals and risk tolerance.

  2. Portfolio Management and Asset Management: These are related terms that involve overseeing and managing a client's investments to ensure they align with their financial objectives, risk tolerance, and priorities.

  3. How Investment Management Services Work: Investment management firms typically require clients to set up investment accounts with them or through a brokerage they use. Investment decisions are based on factors such as savings goals, time frame, risk tolerance, market conditions, historical performance, tax efficiency, and fees.

  4. Responsibilities of an Investment Manager: An investment manager develops investment strategies to meet client goals, allocates assets across various investments, buys and sells investments as needed, and monitors portfolio performance. Some investment managers also provide holistic financial planning services.

  5. Wealth Management: Wealth management encompasses investment management as well as additional financial planning services such as estate planning, tax planning, retirement planning, and coordination with other professionals like lawyers and accountants.

  6. Managing Your Own Investments vs. Outsourcing: Individuals can choose to manage their investments themselves or outsource to investment management services. The decision depends on factors like investment knowledge, time availability, and complexity of financial needs.

  7. Types of Investment Management Services: These include robo-advisors, online financial planning services, and traditional financial advisors. Each offers different levels of service, costs, and approaches to investment management.

  8. Costs Associated with Investment Management Services: Fees for investment management services vary depending on the provider and the level of service offered. Costs may include management fees, account minimums, and additional financial planning fees.

  9. Benefits of Investment Management: Investment management can help streamline financial life, provide expertise in complex financial matters, offer personalized investment strategies, and assist in achieving long-term financial goals.

  10. Career in Investment Management: Becoming an investment manager can be a lucrative career choice requiring education, certifications, and registration with regulatory authorities. The field offers growth opportunities despite challenges such as market unpredictability and competition from automated investment services.

  11. Importance of Investment Management: Investing is crucial for building wealth and securing financial futures. Investment management can help individuals grow their money, narrow wealth gaps, and pass on assets to future generations.

These concepts encompass the core principles and practices of investment management, providing a comprehensive understanding of the topic and its significance in personal finance and wealth building.

Investment Management: What It Is & How To Do It - NerdWallet (2024)
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