Key Differences Between Asset Management and Investment Management
Asset management and investment management are often used interchangeably. However, it is important to realise that both concepts are quite different. Understanding the differences between the two is crucial for effective selection, allocation of your funds, and portfolio management.
Once you understand the difference between investments and assets, you can formulate a customised strategy and meet your short-term and long-term financial goals effectively. If you wish to learn more about how to build an effective investment strategy to ensure you reach your financial goals and objectives, consult with a professional financial advisor who can advise you on the same. Before we move forward to know the differences, let’s understand what asset management and investment management is.
What is asset management?
The management of assets, such as real estate, equities, bonds, etc., is referred to as asset management. Asset management helps individuals determine asset value, financial health, the potential for growth, and investment opportunities. Managing financial and retirement goals, controlling risk, making projections, analysing data, portfolio-building, etc., all come under asset management. Asset management primarily focuses on diversification that helps in effective risk mitigation.
What is investment management?
Investment management involves effective handling of various asset classes ranging right from stocks, mutual funds, and commodities to bonds, pension funds, insurance, etc. The primary objective of investment management is to develop an investment strategy that will help yield profits and lead to wealth generation. Financial statements, portfolio planning, asset analysis, investment monitoring, etc., all come under the purview of investment management.
You can manage your investments personally or hire a professional advisor to help you with the same.
Now that you understand asset and investment management, let us study the differences between the two concepts.
Differences between asset and investment management
Anything of value, such as your home, vehicle, etc., can be considered an asset, besides real estate, stocks, etc. Asset management involves effectively allocating and choosing the right asset per the individual’s needs. On the other hand, an investment is an activity wherein you invest in different asset classes with an expectation of asset appreciation and earning profits over time. This is the primary difference between investments and assets.
When it comes to asset management, asset managers help their clients find different investment avenues and opportunities. In contrast, individuals who are into investment management specialise in asset classes (such as stocks and bonds) and help decide which asset should be made a part of the portfolio.
Asset management tends to take a holistic approach to wealth generation, while investment management is a selective approach. Another difference between investment and asset management is that the former can be done individually; the latter often requires expert guidance.
Some additional differences between asset and investment management are:
Asset management includes the following activities:
- Scanning the market for suitable investment opportunities
- Portfolio allocation
- Planning for estates and businesses
- Financial planning and advisory services
- Planning for retirement
- Coming up with projections of returns that an investment might yield in future
- Preparing reports that give an overview of all the investments
Investment management includes the following activities:
- Setting investment goals and defining objectives for a particular portfolio
- Evaluating and analysing the market and external and internal forces that affect the market in the short-and long-term period
- Deciding which investments to invest in
- Communicating everything related to investments and taking immediate action in case an investment is performing poorly.
- Assessing the economic factors that can affect a particular investment
- Helping different clients with corporate financing and other financing requirements
- Assisting with complicated financial transactions
- Underwriting securities that have been newly acquired
Differences between wealth and investment management
Investing in assets is the main emphasis of investment management; wealth management adopts a more comprehensive strategy. An advisor or broker specialising in investments could take care of the former. However, if you engage a wealth manager, they will look beyond your assets to include taxes, insurance, and the entirety of your estate in the planning process.
Then, one may argue that wealth management and asset management are similar concepts, but that’s not true.
The goal of asset management is to maximise returns, whereas wealth management looks at an individual’s entire financial situation, which may involve managing their assets, taxes, estate, cash flow, and more. Wealth management includes asset management and adopts a more comprehensive approach to your financial situation.
As an investor, you need to understand the concepts of asset, wealth, and investment management to gain a firm grasp over the different strategies. You must prepare for more in-depth discussions regarding your assets and investments with your financial planner or advisor. Analyse your risk appetite and investment goals, and then pick the right investment and asset strategy. Consult your financial advisor before investing.
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