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INVESTING can be a curious business at times, one minute you can be on top of the world and making money without lifting a finger, the next you can be in a real slump and wondering why you bother with it at all.
For most of us, the majority of time we have investments is spent somewhere in the middle of these two extremes, with returns either ticking over nicely and providing us with a reasonable income or a generous nest-egg when we need it, or falling slightly behind where we would like them to be. But let’s face it, ‘jogging along nicely’ does not tend to make many headlines, so it is only in times of extremes that we hear about stocks and shares and the way they are performing on the news.
Sadly, that can mean that people get the wrong idea about investing, they think it is either going to make them a fortune overnight, or lose one within the same timeframe. In reality, you would be either very lucky, or unlucky, to do either.
Now don’t get me wrong, that is not to say it does not happen. But it is rare. You see, with investments, you will only ever make a real loss rather than a paper one by cashing in your investment at a point where you have lost money. For example, if you put $1,000 into a fund and the value of your investment fell to $800 within a week, you would not have actually ‘lost’ anything – your investment value would have fallen, but unless you actually cashed in that $800, you have not lost a penny.
If you left it where it was and the next month it was worth $1,200 – and yes, I know this sounds like a particularly volatile fund, but it is only for illustrative purposes – then you not have ‘gained’ anything in real terms either. Not unless you cashed in your investment at that point, and then you would have made 20% on your money in a month.
The thing is, no matter how you try to separate emotion from financial decisions, it is extremely hard to do, especially when it is your money and financial future that is on the line. This is why many advisers will offer two types of service to help you with your portfolio investing – wealth management, and investment advice.
The latter is, quite simply, the means by which an adviser will take you through what he or she perceives to be the best way for you to invest your money to reach your end goals. They will give you the information about your options, explain the likely pros and cons, and provide you with tools to even monitor the decisions you make about your money. But that is the key part of this, the decisions are your decisions to make, the adviser will not be making them for you.
Now, if you have a lot of time, or a specific knowledge or interest in investing, that may well be the best way for you to deal with your financial affairs. You would have control over how and when your money is moved, what investments you choose to put your money into, and determine when to be in or out of certain markets.
This is part of the fun of investing, but it is also hard work to keep up with everything that is going on while you are keeping up with everyday living. So if you prefer not to have this extra workload, then you can choose to use a wealth management service instead.
Although wealth management has elements of investment advice within it – the adviser will need to know your aims and objectives before making any decisions – the day-to-day running of your portfolio will be given over to a professional. So you will not have a say in exactly when and where you money is moved around, the wealth manager will make those decisions for you, but they will be based entirely on the agreement you come to around what you want your money to do for you, and over what period of time.
Wealth management takes the worry and effort out of researching the market, keeping a close eye on the news, and moving your money around yourself, often when it is too late. It is the practice of giving a professional the reins of your portfolio so they can keep everything on track for you.
They will be backed up by teams of researchers who will be checking market moves and news on a regular basis, and their expertise will allow them to see trends or potential pitfalls before the general public. This can give you an advantage. Since they are working on this full-time, they are often able to make decisions ahead of the majority of investors, and that is likely to keep your portfolio either protected, or moving forwards more effectively.
Yes, wealth management services can cost more than investment advice, but then you tend to get more out of them – they will generally prove their worth. After all, there is no point in having lower fees if the result is a much lower investment performance after those fees are taken into account.
First published in Expatriate Lifestyle
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