Keep an open mind! According to a past survey by the Economic...
by Nate WittigThe Difference Between Wealth Management and Investment Management
Your wealth is the accumulation of valuable items you’ve amassed over time. Your investments are the various places you’ve put your money where it has a chance to grow. As correlated as they may be, the proper ways to manage them both tend to be quite different.
So, how exactly do you attack investment management compared to wealth management and make sure you’re hitting your goals? Many people enlist the help of a financial advisor, but even choosing the right one for your needs is a project.
The more you understand your finances, the easier it’ll be to achieve your goals. We are going to take a closer look at what separates your wealth from your investments and what is involved with managing each one. That way, if you need to hire a professional, you will know who to call.
Investment Management
Think of investment management as caring for the individual trees that comprise a forest. You have to allocate your assets, diversify your portfolio, and manage your risk. With proper care, good balance, and a little patience, you can nurture the money you put in so it will grow.
Your focus when managing your investments is keeping all your assets healthy and hitting your goals. Whether you have stocks, bonds, mutual funds, or real estate you want to optimize what they earn. After all, the ultimate goal of investing is growth.
Market trends are king. Maybe it’s a beneficial time to sell your rental home and roll the money into a new area. Perhaps you would be better off shifting to a bond-heavy portfolio in a time of high-interest rates.
About the Pros
An investment manager tries to hit your growth goals by creating a strategy and constantly adjusting it based on all these factors. They have their finger on the pulse and can act on your behalf to buy or sell securities and move things around when it’s in your best interest.
Wealth Management
Wealth management is like getting a bird’s eye view of your financial mountain that contains your investment forest. You plan for retirement, readjust budgets, figure out your taxes, and set up your estate. You’ve built this marvelous thing, and now it’s time to preserve it.
The focus of managing your wealth is all about taking care of everything of value that you’ve accumulated. You have a pension, a few properties, a stock portfolio, and a few classic cars, but you need to handle it all the right way.
Safeguarding everything you’ve amassed is the name of the game. Your investments are a part of that, but so is deciding the most affordable place to retire or who will inherit your wealth when you’re gone.
About the Pros
A wealth manager looks at everything you have and figures out the best way to maximize what you can keep and where to keep it. They can set up trusts, plan your retirement, look for ways to reduce your tax liability, create budgets, and dial in the finer details of your financial playbook.
Comparison Between Wealth Management and Investment Management
Clearly, wealth management and investment management share some similarities, but their differences are what make an impact on your decision-making and financial planning. Let’s take a look at a side-by-side comparison of how they vary.
| Investment Management | Wealth Management |
|---|---|
| Investment management is for specific areas of your finances. It focuses on your portfolio of stocks and other assets. | Wealth Management includes your investments but is geared toward the bigger picture. |
| The goal of investment management is to continue to grow your money. | The goal of wealth management is to preserve what you’ve grown. |
| The relationship between you and your investment manager will likely be more limited as they deal with a portion of your finances. | Your relationship with your wealth manager will be close, and you should choose one that aligns with you personally as they deal with many aspects of your life. |
How to Know Which Type of Management You Need?
Choosing the right management strategy will depend on your and your family’s needs.
If you’re looking to tackle your overall finances and build a solid plan for your future, your focus should be across the board with wealth management. But if you’re current goal is to make a large investment or grow your portfolio, concentrate on investment management.
Choosing a Financial Manager
While investment management software is enough for many people to stay on track, you might need to hire a professional. Choosing the right professional to handle everything is critical. When looking for someone to manage your finances, you should consider a few things.
First, figure out what level of help you need. Do you just want assistance with your taxes and accounting, or do you want someone that will take the wheel and do everything? Once you’ve determined that, you can start searching.
- Finding a Professional – Start by asking for referrals from friends and family. Pay attention to what professional designations your potential choices hold (CFA, CFP, CIMA, etc.) and the specific services they provide. For instance, if you’ve invested in real estate, you want a manager that has the skills to help you in that area.
- Vetting Out Your Options – The most important factor is that you need to trust your advisor, so don’t be afraid to ask a lot of questions, examine referrals or run a background check. And if you don’t align with their communication style, you might want to keep looking.
- Associated Costs – Of course, the fee structure is also something to pay attention to. They could charge a flat rate, a percentage of assets they handle, simple hourly fees per project, or a combination of all of them. Some managers are even commission-based.
Pick a Management Style That Aligns With Your Goals
While investment management is a part of wealth management, they aren’t totally the same. Ultimately the one you need (and you may need both) depends on your current financial position and your goals.
If you’re solely looking for help with your stock or real estate portfolio, then it’s time to dive into the world of investment management. But when you’re planning for retirement or you want sweeping guidance on your total financial situation and a long-term, general plan, wealth management is the path you should seek.
Whichever route you decide to go, always be thorough and selective when making any financial decision, and don’t hesitate to seek the advice of a professional.
