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What is Asset Management?

Recently I was interviewed by Maggie Nielsen, Partner at Purse Strings to help their viewers understand the concept of “asset management”. What is it? Why is it important? How does it affect your investments or your overall portfolio? Read below to learn more about what asset management is and how we think of it at CAM.

Asset Management – What is it?

The official Investopedia definition says “the practice of increasing wealth over time by acquiring, maintaining, and trading investments that can grow in value.”

What this boils down to is the continuous review and maintenance of someone’s assets – all the different types of investments or cash equivalents they hold. Just as you would manage your household pantry – ensuring the right mix of vegetables, fruits, grains, proteins are available, for the right amount of people in your house – you need to monitor and maintain your financial portfolio.

Wealth advisors do this for their clients. They make sure their clients financial portfolios are invested in the right assets, at the right time, to meet the goals and needs of that client.

How does this play into investing?

It’s the central part of investing! It’s like the engine of a car that makes the vehicle get from point A to point B, where you want to go.

You can buy individual stocks, mutual funds or bonds, but unless you have a plan of how it all fits together – it’s just pieces of the car. You need to have a plan and a goal, and know how each piece integrates to achieve what you want with investing.

It may be surprising that there is a lot of psychology around investing.  People think “I want to invest to make more money”. But they don’t think about “How much exactly do I need to make? When do I need it and what will it be used for?” Questions about taxes and legacy should also be considered. We usually start our first few meetings with clients really trying to get to know them. Then in subsequent meetings we’ll talk about financials and investments.

What are assets in investing?

We actually have a chart on our website that shows the “universe” of investable assets. The most well known are the traditional stocks and bonds. However, within each of those two groups there are a number of sub groups.

For example, within stocks – there are large cap (or big companies) and small cap (small companies). There are value companies (meaning they have a lower price) and growth companies (a higher price per share). You also need to considers geographically where to invest. In the U.S. alone or will you invest in other countries? The US makes up about 60% of all equity stocks in the world. By not investing in other countries, you’re leaving almost half of the available investments off the table.

Within bonds – there are government bonds, corporate bonds and various levels of ratings. Some are very highly rated, meaning safer and then there are the junk bonds, which are very risky. There are also different lengths of bonds. For example, some are short (6 months) and some are as long as 30 years. There are also global bonds, just like there are global stocks. The US only holds about 38% of bonds in the world! If you don’t invest in bonds outside the US, you’re giving up over 70% of your options.

Beyond Traditional

Beyond the traditional assets, you have other asset classes like real estate, commodities, and now even digital coins. A big asset class that most people don’t know much about is private equity, debt and real estate. Private assets make up a bigger part of investable assets than the traditional stocks and bonds do, combined.

Usually you need to work with a professional investment advisor or financial advisor to invest in private assets due to the nature of how they can be offered and how you can access them.

Which assets to invest in

The decision on which assets to invest in, how much and the selection of the exact investments should be based on several factors. A person’s goals, risk tolerance, liquidity needs and time horizon should be considered.

Once these have been established, then it’s easier to create the right mix or recipe for that specific person.

If you need money in the next few years for something like a house purchase or college funds, you’d want to stick with something low risk and pretty liquid. While this may not result in the best returns, it will increase the probability that the cash is there when you need it in the next 1 – 3 years.

Conversely, if you have a long time horizon, for example this is your retirement account (a 401k or IRA), you’d likely consider more risky or illiquid investments. With 20 – 30 years to let this money grow, the short term volatility won’t affect your overall growth as much.

The most treasured asset in investment management is a steady hand at the tiller.

Robert D. Arnott

As you can see there are many components to asset management. It’s a little bit science and a little bit art – and all completely unique to the investor. If you have questions about your asset mis, we’d be happy to provide a second opinion.

M & A Consulting Group, LLC, doing business as CAM Investor Solutions is an SEC registered investment adviser. As a fee-only firm, we do not receive commissions nor sell any insurance products. We provide financial planning and investment information that we believe to be useful and accurate. However, there cannot be any guarantees. 

This blog has been provided solely for informational purposes and does not represent investment advice. Nor does it provide an opinion regarding fairness of any transaction. It does not constitute an offer, solicitation or a recommendation to buy or sell any particular security or instrument or to adopt any investment strategy.

Past performance is not a guarantee of future results. Diversification does not eliminate the risk of market loss. Tax planning and investment illustrations are provided for educational purposes and should not be considered tax advice or recommendations. Investors should seek additional advice from their financial advisor or tax professional.

As Director of Client Communications, Alyssa engages with all of the firm’s clients to better their experience and make a positive impact on their lives. As an Associate Wealth Advisor and member of the Investment Committee she specializes in working with women, mid-career professionals and families. As an advisor that embodies all these characteristics herself, she is able to easily connect with her clients and their lives.