Personalized investment management involves building a portfolio that is tailored to your needs. With this approach to investing, you or your financial advisor create a plan and portfolio based on specific goals, options and preferences. It varies from a systematic approach, in which your advisor would help you invest in a series of assets defined by the market and a standard profile.
If you’re interested in putting a personalized investment strategy into practice, consider reaching out to a financial advisor to discuss how it could help you reach your goals.
How Does Personalized Investment Management Work?
Personalized investment management is the practice of tailoring a portfolio to your specific needs as an investor. This means building a portfolio that takes into account a variety of metrics, such as:
- Goals: What are you trying to achieve?
- Timeline: When do you need to achieve it?
- Risk Tolerance: What risks can you accept?
- Savings Potential: How much can you contribute?
- Recovery: How can you make up for losses?
- Overall Finances: What is your wealth and income?
Based on these and other factors, your financial advisor will recommend a specific series of assets designed to meet your needs. For example, you might have a relatively high level of income with a goal of saving for a child’s college tuition in 12 years. In that case, your advisor might build a relatively aggressive portfolio, since you would need significant returns and have both time and assets to replace any losses.
It’s important to understand that the details of personal asset management will vary widely.
At its most extreme, your advisor might select a basket of specific investments based on your financial profile. This might include common assets, such as individual equity investments and bonds; more unusual assets, such as real estate or derivatives; and even exotic assets, such as private businesses.
In other cases, your advisor might simply balance your portfolio on a spectrum to reflect your needs and risk tolerance. This can be most typified by the classic bond/equity balance. In that case, for example, your advisor might advise a 60/40 split for investors seeking greater safety, or a 20/80 split for aggressive investors with lots of time.
In all cases, however, the core practice is one of personal review and recommendation.
How Personalized and Systematic Investing Overlap
The alternative to personalized investment management is systematic investment management.
With a systematic approach, your financial advisor will guide you based on general market returns. For example, they might recommend a simple index fund for its overall returns. Or a portfolio structure that’s generally effective for someone with similar goals.
For an individual who’s saving for retirement, an advisor might recommend that they follow a general asset balance for retirement savers in their age range, with heavier weighting towards equities for those in their 30s versus bonds towards age 60. A personalized investment management approach, on the other hand, might build a portfolio based on several different asset classes balanced around the client’s overall financial position at any given time.
These two approaches heavily overlap, however. Even the most personalized approach will still take into account generalized market returns and historic performance. Meanwhile, even the most systematic approach will account for the investor’s goals and risk tolerance.
Pros and Cons of Personalized Investment Management
The main advantage to personalized investment management is that it can help you meet your goals more efficiently.
If your advisor takes your individual needs and assets into account, they can build a portfolio that’s more effective at balancing protection and growth. Your portfolio manager can direct your investments based on the business cycle, and can help steer you into lower-risk assets when you need to protect your money. They can turn around and invest more aggressively when you have the flexibility to accommodate volatility and potential losses. All of this can make for a more tailored and potentially effective portfolio.
A significant disadvantage to personalized investment is its tendency toward active portfolio management.
Personalized investing often involves a shift away from market-based investing and toward active investing. This can involve trying to time the market, as asset managers invest around the business cycle and try to beat the market based on an individual’s finances.
These are typically unsuccessful approaches to investment. Trying to time the market rarely works and very few asset managers manage to actually outperform the S&P 500. The result is that, if personalized investment management goes too far, it can lead to active management techniques that will underperform compared with even a simple S&P 500 fund.
To a certain degree, all investment management should be personalized. You should structure your investments around your needs, goals and risk tolerance. Just make sure that these remain wise investments, and remember that it’s very rare for anyone to beat the market.
Bottom Line
Personalized investment management is the practice of building a portfolio and investment plan around your specific situation. While it’s important to avoid a plan that segues into loss-making market timing, a good portfolio can take advantage of your needs and options, while still taking into account your personal financial goals and risk tolerance.
Tips on Building an Effective Portfolio
- Personalized investment management involves building a portfolio around your needs. Once you get started, here are some strategies for effective portfolio construction.
- A financial advisor can help you build a comprehensive retirement plan. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
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