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

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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 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 a seasoned financial professional with extensive expertise in investment management and financial planning. Throughout my career, I have successfully navigated the complexities of the financial industry, honing my skills and staying abreast of the latest trends and developments. My understanding of investment strategies, portfolio management, and wealth advisory services is backed by practical experience and a commitment to optimizing financial outcomes for clients.

Now, let's delve into the concepts mentioned in the article:

  1. Investment Management Definition: Investment management involves maintaining an investment portfolio, which is a collection of financial assets. This includes tasks such as buying and selling assets, creating investment strategies, managing asset allocation, and developing tax strategies. It is a process aimed at optimizing every dollar in a portfolio, aligning with the client's goals, risk tolerance, and financial priorities.

  2. How Investment Management Services Work: Investment management firms typically require clients to set up investment accounts. These firms assist in transferring funds from existing accounts and base investment decisions on factors like savings goals, time frames, risk tolerance, market conditions, historical performance, tax efficiency, and investment fees.

  3. Role of an Investment Manager: An investment manager, whether an individual or a company, formulates an investment strategy aligned with the client's goals. They make decisions on how to allocate the client's portfolio across different types of investments, such as stocks and bonds. The manager also monitors the portfolio's performance and may provide holistic financial advice beyond just managing assets.

  4. Wealth Management: Wealth management extends beyond investment management, encompassing various financial services like estate planning, tax planning, and accounting. It addresses the broader financial needs of high-net-worth clients, often coordinating services from other professionals such as lawyers and accountants.

  5. Managing Your Own Investments: Individuals have the option to manage their investments independently or outsource the task. Managing investments independently involves decisions on account types, types of investments, and the amount to invest. Outsourcing can be done through various services, each with its pros and cons.

  6. Robo-Advisors: Robo-advisors are automated, low-cost solutions that use algorithms to determine the ideal investment mix based on client-provided information. They are suitable for various investors, especially beginners, and typically charge a percentage of assets under management.

  7. Online Financial Planning Services: Online financial planning services offer guidance that extends beyond investment management. Some provide access to a team of financial advisors, while others offer a more comprehensive service, including a dedicated certified financial planner (CFP) along with low-cost investment management.

  8. Traditional Financial Advisors: Traditional financial advisors provide portfolio management and financial planning services. They often meet with clients face-to-face, discussing overall financial pictures, goals, and planning. Fee structures vary, and it can include assets under management (AUM) fees, hourly charges, or annual retainers.

  9. When to Hire an Investment Manager: Hiring an investment manager is beneficial when facing complexities like managing multiple accounts, lacking confidence in making investment decisions, dealing with major life events, or requiring assistance with various financial needs beyond portfolio management.

  10. Investment Management as a Career: Becoming an investment manager can be a lucrative career move, with financial advisors earning a median income. A bachelor's degree is typically required, and additional certifications like Certified Financial Planner (CFP) can be advantageous. The industry faces challenges from market unpredictability and the emergence of robo-advisors.

  11. Importance of Investment Management: Investment management is crucial for building generational wealth. It helps individuals grow their money and bridge wealth gaps. Investing early is emphasized to counter the effects of inflation. According to data, there are disparities in wealth and investment holdings among different demographic groups, highlighting the importance of investment management in addressing these gaps.

This comprehensive overview showcases the intricate aspects of investment management and its broader role in financial planning.

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


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