Investment management encompasses more than just picking stocks and bonds for your portfolio. Instead, it’s a holistic approach to your wealth strategy, taking account of all aspects of your finances in order to help you achieve your financial goals. In addition to building a diverse portfolio tailored to your risk tolerance, investment management also includes elements like tax planning, estate planning, charitable giving, and goal setting.

While you may be able to execute these strategies on your own, choosing an experienced investment manager may improve your investment while also saving you a significant amount of time. Find out everything involved with investment management and when to get help from a professional.

Five Parts of Investment Management

Investment management involves many different components. Here are the primary strategies included when building a holistic plan for your investments.

Building a Portfolio

There are many other factors that you or your investment manager should take into account when determining your ideal asset allocation. These include elements such as:

• Diversification
• Risk tolerance
• Time horizons for your financial goals
• Trading costs

Be wary of investment managers who guarantee results or recommend stocks with abnormally high returns (and potentially higher fees). Your risk tolerance should be based on the time horizon of your goals and should be tempered with diversified asset classes. At Dowling & Yahnke Wealth Advisors, we also educate our clients on the total cost of their investments so they can see the big picture. If you only measure stock performance, you may overlook the fact that your balance is suffering from costs such as transaction fees, custodial charges, or high trading costs. If you are curious about the difference between asset management versus investment management check out our blog.

Managing a Portfolio

Building a portfolio is a crucial part of investment management, but it’s just the start. Once your portfolio has been created considering your personal risk tolerance, goals, and time horizons, it’s important that your portfolio is monitored and adjusted regularly which includes:

• Objective rebalancing
• Asset allocation
• Tax-loss harvesting

At D&Y, we monitor portfolios daily, rebalancing as needed based on market fluctuations to make sure your portfolio stays on track with your goals. In addition, your portfolio building blocks may need to be revisited and adjusted as your life and goals change. A trusted financial advisor can help you address these financial decisions as they happen.

Tax Planning

You may not think that taxes and investments impact each other, but they’re actually interrelated. Always consider the tax implications of any decisions you make with your investment strategy. A professional financial advisor doesn’t file your taxes for you but does play an important role in your overall tax planning. Working with other professionals in your sphere, an advisor tailors your investments to optimize income, gift, and estate taxes, as necessary.

Investment management for tax planning purposes may include some of the following strategies:

• Converting assets from a traditional IRA to a Roth IRA can provide you with a number of benefits including tax-free growth, no Required Minimum Distributions, and tax benefits for your heirs.
• Family gifting:  Weigh the pros and cons of reducing your taxable estate with the tax implications of giving financial gifts to your family today.
• Qualified education transfers:  Each type of investment account comes with its own rules for withdrawals used for educational expenses. Investment management helps you prioritize which accounts to use in order to minimize any taxes on those withdrawals.
• Qualified medical transfers:  Health care is expensive, especially as you get older and may need more medical attention. Investment management can balance these costs with tax savings by helping you use funds from an eligible Health Savings Account (HSA).

Charitable Giving

Charitable giving may seem like a tax strategy, and it is — but it can also be part of your investment management strategy. Here are a few examples of how to use your investments as part of your charitable giving (check with your tax professional to understand if such strategies are appropriate for you):

• Donor advised funds:  Putting money into a donor advised fund usually lets you take an immediate tax deduction. You can then let your contributions grow tax-free over time and make donations to charitable organizations on your own schedule.
• Gifting appreciated stock:  Potentially limit your capital gains tax by donating appreciated assets to the charity of your choice. Working with an advisor can help you choose the best options for this strategy, which typically have had a major jump in value and have been in your portfolio for at least a year.
• Qualified Charitable Distributions (QCDs) from IRAs: When you reach 72 years old, you must take Required Minimum Distributions (RMDs) from your IRA each year. To help reduce your taxes, you can make a Qualified Charitable Distribution up to $100,000 annually.

Charitable giving can be a fulfilling and tax-efficient component of your investment management plan. Just be sure to seek professional input to make sure you’re aligning with the latest rules and regulations and you are receiving the right financial services to guide you through the process.

Goal Setting

Investment management helps you identify your goals while creating a roadmap to reach them. Here are some things to think through when developing your investing strategy:

• What you hope to achieve in the short-term, mid-term, and long-term
• Health
• Family situation
• Other dynamics in your personal and professional life

Taking a holistic approach to investing also allows you to prioritize. Sometimes trade-offs need to be made, whether in the form of risk versus reward in your investments or by figuring out how much you need to save now in order to spend the way you want to in retirement.

Reasons to Get Help with Investment Management

You can benefit a great deal from working with an investment management professional. Here are a couple reasons to consider getting external help from a financial advisor.

Freeing Up Your Valuable Time

Professional investment management is as much about maximizing your financial success as it is about saving you time. A good advisor is passionate about the financial landscape and making sure you’re getting the most out of your wealth building strategy. Plus, it’s their job to stay on top of relevant regulatory changes. They’ll let you know how you’re impacted and what your options are moving forward. No matter how much you understand the market, it’s often worth having someone else take the time and effort to manage your investments proactively..

Making Educated Decisions

Even if you’ve spent the last several decades managing your own investments, hiring out the process can help you make better, more educated decisions. Rather than being swayed by your own emotions, a financial advisor helps you navigate both bullish markets and turbulent times. At D&Y, for example, we steer you away from making decisions based on “gut feelings” and instead serve as an objective partner that manages your portfolio on a daily basis.

What to Ask Your Investment Advisor

To better understand how you can get the most from investment management services you need to ask your advisor the right questions. When first interviewing potential investment advisors, make sure they’re dedicated to acting in your best interest. You can get a good idea of this by asking questions such as:

• Are you a fiduciary?
• How do you charge for your services?
• What other costs will I absorb?

Read our full list of 15 questions to ask a financial advisor here.

Once you’re working with a specific advisor, regularly check in on your current goals and what might need to change. Learn to ask questions directly about your retirement planning progress as well as other financial goals. Remember that an investment advisor is there to help you with the big picture, not just retirement.

Bottom Line

Your approach to investment management should be a holistic one. By creating an integrated strategy, you’ll continue to build your wealth in a healthy, diversified way. You’ll also be better positioned to react to external factors that occur over time, whether it’s a major life change or economic turbulence.

Ready to get professional help with your investment management strategy? Get connected with a San Diego-based financial advisor at Dowling & Yahnke Wealth Advisors.