INVESTMENT LEVEL: ALL
Have you ever wondered if you have the right investments to meet you goals? If you answered yes, then you are wondering about investment management. Perhaps we can share some ideas to help you get started. Investment management can be accomplished in a variety of different ways and we are going to explain the basics. There is a logical order of progression for investment management, so we will start at the beginning and go from there.
Define the Purpose of Your Investment
When you define an investment goal it will clarify your thinking. Having clarity of thought with respect to your investments is important because you will avoid making dumb mistakes like investing in aggressive investment when you plan on using the money to buy a home next year.
Ask Yourself the Right Questions
Begin the process by asking yourself questions like:
- What do I intend to use this money for?
- How long will it be before I need to use it?
- How much risk am I willing to take with this money based on its purpose and time frame to invest?
- How should the account be structured to give me the best possible tax advantages?
Decide on What Types of Investments to Use
Once you have defined your investment goal and purpose, you are ready to move on to the next step; deciding which investments will best suit your needs. There are so many places to put your money these days, and the banks, brokerages, mutual fund companies and insurance companies all have solutions to propose with products to that they think will fulfill your needs.
Suppose after going through the process of questioning the specifics of your investment, you have determined that you need to start a college education savings plan for your new born child. You plan to invest for growth over the next 15 years, and can tolerate moderate market fluctuation for the account. You can instantly rule out bank products and insurance products. They will not give you growth. You would rule out individual securities because they often encounter more than modest fluctuation when going up and down on value. The most logical choice would be mutual funds. If structured properly, they will give you modest fluctuation most of the time and give you a chance to grow your money of the long term.
Decide How to Allocate Your Assets
So now you know the purpose of your investment and the parameters that surround it. You have decided on how you can structure the investment for maximum tax benefit. You know what type of investment vehicle you will utilize. Now what? You need to decide how the money should be invested. More specifically, you will actually begin to allocate your capital into specific investments.
The Asset Allocation of your Portfolio
Asset allocation is important because it diversifies your portfolio and reduces risk. Asset allocation is simply how you intend to deploy your assets among different classes of investments. Stated in a broad sense, how much will be invested into equity, fixed income and cash. We can drill down deeper and further define an asset class for a more specific allocation among classes within the broadest categories. For example, you intend to keep 40% of your assets in fixed income. When investing in fixed income you wish to have 50% of your fixed income dollars in long term municipal bonds, 25% in high quality long term corporate bonds and the remaining 25% invested in high yield corporate bonds.
How you allocate among investment classes will be a determining factor of risk and return. As lower risk investments are introduced into your allocation the level of risk and fluctuation will decline. It is important that you understand the risk to the specific investments you make within each asset class as they will be can be affected by many external factors like economic cycles, interest rates, tax policy currency fluctuation and many others.
When all is said and done, you want to specifically allocate portions of your investment dollars toward investment classes and further define those classes with sectors within that class. This holds true for all of your basic asset classes; equity or stocks, bonds and cash.
The Investment Before Committing to an Investment
Whatever investment you consider in the investment management process you will need to do your homework before you commit your capital.
Three Points to Consider:
- Carefully weigh the risk involved.
- Make sure that you are cost efficient in your choices, as the fees and expenses vary greatly within the financial services industry.
- Be aware that just because investment has done well in the past, it doesn’t mean it will do well in the future.
If you take the time to commit time to the process of investment management you may find yourself with a more comfortable feeling of owning the “right Investments”.
Investment Insight Wealth Management is an SEC Registered Investment Advisor. We are an Independent firm with over 25 years of investment experience. We have a spotless disciplinary record with every regulator in the securities industry. We are fee based advisors. If you would like to speak with someone in our firm regarding your personal or business financial concerns, please feel free to contact us by telephone (516) 249-0060, or by making a request to speak with one of our advisors on the website www.myinvestmentinsight.com/contact
