Investment management is a practice that has been around for ages. People used to really have no idea what the stock market was, and it really tended to scare people away.
With that in mind, a lot of people made themselves authorities in the space and managed people’s money.
Even though the process is a lot different than back then, there are still people that will manage other investments. You may be wondering, why would I want someone else to manage my investments? Well, I have come up with some of the best reasons as to why it makes sense.
There are a range of different styles of fund management that the institution can implement. For example, growth, value, growth at a reasonable price (GARP), market neutral, small capitalisation, indexed, etc.
Each of these approaches has its distinctive features, adherents and, in any particular financial environment, distinctive risk characteristics. For example, there is evidence that growth styles (buying rapidly growing earnings) are especially effective when the companies able to generate such growth are scarce; conversely, when such growth is plentiful, then there is evidence that value styles tend to outperform the indices particularly successfully.
You Can Focus on Your Expertise
Probably the biggest thing that I can think of that would be beneficial for someone to have their investments managed is that it lets them work on things that they are good at. For instance, if you are a business owner, then you should spend all your time growing your business. That is where you will see the biggest return on your time.
Learning to invest in stocks or real estate is time consuming, and in your process of learning you might lose quite a bit of money. Instead, you can grow your business and know that an expert is managing your cash.
It really is a smart idea to do what your expertise is and let an investment professional perform his or her expertise with your cash. It also frees up more time for you to do what you enjoy instead of researching companies and reading earnings reports.
Key problems of running such businesses
Key problems include:
- revenue is directly linked to market valuations, so a major fall in asset prices can cause a precipitous decline in revenues relative to costs;
- above-average fund performance is difficult to sustain, and clients may not be patient during times of poor performance;
- successful fund managers are expensive and may be headhunted by competitors;
- above-average fund performance appears to be dependent on the unique skills of the fund manager; however, clients are loath to stake their investments on the ability of a few individuals- they would rather see firm-wide success, attributable to a single philosophy and internal discipline;
- analysts who generate above-average returns often become sufficiently wealthy that they avoid corporate employment in favor of managing their personal portfolios.
Peach of Mind
Relating to my previous point, you are going to be focusing on your career or hobbies, and you don’t have the stress of managing investments day to day. There is a lot of stress watching your money go up and down throughout the day, and it could cause a lot of concern.
Not only is it stressful, but since you are inexperienced you might have “weak hands.” That term refers to selling right away after a massive drop in stock price or a hit on a property value. The best investors that are professionals know that you have to ride out the market and not panic.
You technically only lose money when you sell the asset, so it is much smarter to ride it out and for it to rise up to new highs in the future if it is a good investment.
I hope that you can see now how much investment management makes sense for a lot of people and now you can see why it can be necessary. There are certain drawbacks like fees, but it can still be very necessary for some people.