Asset management strategies for long-term financial security
One of the more important aspects of a sound investment strategy is the ability to deliver financial security for the person or organisation making the investments. Ideally, a portfolio should act as a buffer against economic challenges like downturns and chronic inflation.
Asset management is the strategic handling of your investments and resources. It’s an art form that, once mastered, can help to steer your financial future toward security. But exactly how does it do this? There are several key strategies to consider.
Diversification: Spreading your risk
Put all of your eggs in one basket, and you risk losing all of those eggs when the basket fails. Spread those eggs across multiple baskets, on the other hand, and you can afford to lose one or two of them.
The same principle might be applied to an investment portfolio. If you put all of your money into, say, stocks in a single tech company (or even tech as a whole), then you’re at greater risk than if you’d spread those investments across multiple categories and types of investments.
Think about how much risk you want to assume and what your financial goals are. Then invest accordingly.
Strategic asset allocation: Finding the right balance
‘Asset Allocation’ is a general term used to refer to the blend of investments you’ve selected. These might be stocks, bonds, or other financial instruments—or they might be physical assets like trading cards, musical instruments, or classic cars.
Generally speaking, a portfolio that is weighted more heavily toward stocks will confer more risk than one that’s geared toward bonds. Arranging the balance of your portfolio will allow you to assume a risk that’s fairly predictable and consistent.
Investing for the long term: Riding out market volatility
Of course, many investments will appreciate and depreciate considerably during their lifetime. Many of these fluctuations are driven by emotional decisions made by investors for the short term rather than rational calculations designed to bring about a return in the long run.
One of the more effective strategies for long-term gain is to simply wait and do nothing. Ride out the storm and wait for your stocks to rise to their previous level. Don’t panic and sell your stocks during a downturn, since this is the point at which they’re not valuable.
Remember, losses in the short term are not a sign that something is going wrong—they’re an inevitability.
Tax-efficient investing: Maximising your returns
Certain kinds of investments are taxed more heavily or lightly. In the UK, you might think of ISAs or pensions which are subsidised by the government to encourage savers to think about their future.
When you’re weighing your investment options, you must consider the effect that tax will have on your returns in the long term. You might do this in collaboration with a consultant or an accountant.
Estate planning and wealth preservation
If you’re looking to safeguard your wealth and ultimately transfer it to your children, then you’ll also want to think about things like wills, trusts, and executors. The amount of inheritance tax you pay might be influenced by incoming governments, but you can still protect yourself by taking precautions. You might, for example, transfer your wealth to a spouse, in which case you’d fall into the ‘Residence Nil Rate Band’ for inheritance tax.