Investment Management

Investment Management is the simplest of the Wealth Management tasks in theory, yet probably the most difficult in operation.

Most people want their invested assets to increase in value. At the same time, they do not want to see a decline in value. On top of these two issues are the needs to maintain adequate liquid reserves so that cash can be available for emergencies or unexpected opportunities, and a concern that one's income potential keeps pace with inflation and taxes.

Often these are competing objectives. For example, one cannot obtain greater growth than is available in guaranteed accounts, without the risk that their accounts will earn less than guaranteed accounts or actually go down in value. One cannot usually obtain guaranteed returns that will outpace inflation and taxes.

Compounding the challenge is that everyone is an expert on these matters. Newspapers, magazines, radio, television, and the Internet are always screaming about the “right” way to invest, although they are never responsible for the outcome of their advice. People around you always tell you how they made money investing on their own, although they never share their losses or missed opportunities.

The reality is that there is nothing about asset management that most people cannot do themselves. To be successful at investing, however, requires at least the following:

  1. Time - to study on a consistent basis the reasonable options, to make decisions, to act on those decisions, and then to make changes when appropriate.
  2. Interest - to enjoy the research and the monitoring required to obtain favorable results.
  3. Energy - to do what is required throughout the years.
  4. Experience and perspective - to understand how the past might be a guide to the future, and how it is not predictive of future results.
  5. Patience - to cope with up periods, down periods, and (often the most difficult) flat periods when it seems that nothing is happening.
  6. Discipline - to stay with a strategy even when it seems to be underperforming, unless and until one's circumstances change.
  7. Objectivity - to keep your pride or fear from influencing your decisions.

While many people can invest with the above traits, the reality is that most people do not. But then, most people do not repair their own vehicles, build, or paint their own homes, treat their own medical or dental ailments, or represent themselves in the legal process. In all these cases the use of a professional usually costs less and obtains better results than doing it on one's own.

Investment Management is like the running of a business. Some people can do it all themselves. Of course, their potential is limited. Generally, business owners hire employees to do the tasks which others can do more cheaply than the owner can.

Successful business owners hire general managers to oversee the day-to-day operations, and in doing so they free themselves up to do what they enjoy most and do best.

You are the owner of your business, the management of your financial resources. If you are someone who can do all aspects of this by yourself, it does not make sense to pay a professional to do it for you. However, if you have other interests which make it difficult or unpleasant to commit the time and energy to manage your own investments, or if you discover you are not really effective at it, or any combination of these things, then hiring a general manager is the prudent thing to do.

There is one last thing to keep in mind. Many “experts” will preach the importance of investing according to formulas. One is that bonds should represent the percentage of your portfolio that corresponds to your age (an 80-year old should be 80% in bonds, and a 30-year old should be 30% in bonds). Another theory is that the percentage of your portfolio in growth stocks should follow a chart, again based upon age. There are many more such formulas. Be very careful of following such advice, it does not in any way take into account your unique situation, and often it can be dangerous.


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