Portfolio Management

For the average retail investor, finding a portfolio manager that matches their own investment philosophy and goals is an essential aspect to saving wisely. In the widest sense, portfolio managers are responsible for asset allocation in anything from individual investment accounts to products with assets under management well into the billions, like a mutual fund. In any case, the buck stops with the portfolio manager when it comes to asset selection and investment strategy.

In general, there are two main types of portfolio management philosophies that dominate the landscape. The first, referred to as active management, places a higher emphasis on the portfolio manager's ability to make wise investment choices. Active managers try to find and purchase undervalued assets to outperform the market. They pick certain assets and attempt to time the markets in order to earn their investors or clients above average returns. Passive managers, on the other hand, devote their efforts to finding an asset allocation strategy that matches certain benchmarks or indexes, trying only to keep pace with the market instead of outperform it. The virtues and drawbacks of each philosophy are a hotly debated topic in finance, so it remains up to the individual investor which investment management strategy suits their needs best.

There is a wide variety of options available to the investors in terms of the portfolio manager's compensation. In a big operation like a mutual fund, the manager might take a certain percentage of assets under management as expenses to pay for salaries and operations. For investment managers that work with individuals, compensation might be based on commissions for financial products sold or fee-only, which means they take a percentage of assets under management according to a specific formula. Generally, passive management tends to be on the low end of the cost spectrum.

Regardless of particular philosophy and operations, the main advantage that good wealth management brings to the table is professional advice and expert implementation of the investor's ideal investment strategy. Take, for example, a portfolio manager who advises individuals with their own investment accounts. Sound investment strategy and proper diversification in the modern market, with all of its products to choose from and relative opacity to the average person, can be an overwhelming task for someone with little investment experience. A wealth manager can help these people find the right asset allocation for them based on factors like age, income, retirement goals, and income needs. They are a holistic solution to all the factors that a person might have difficulty balancing when putting together their own savings plan.