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Investment Portfolio Management: Invest in Your Future

Investing can be a way to help build wealth over time. While all types of investment carries risk, it’s a popular strategy to purse your long-term financial aspirations.

Let’s break it down, piece by piece. 

Investments put your money to work instead of letting it sit idle. Investing is like planting seeds that you hope will grow over time, whether that’s buying stocks, bonds, or commodities like real estate. The goal is they become more valuable over time, and you can reap a return on your investment.

A portfolio is your collection of these different types of investments.

And management is simply how you take care of and watch over these investments. The portfolio manager, whether that's you or a professional, makes sure your investments match your goals (like saving for retirement or your kids' college) and helps protect your money from too much risk. They keep an eye on how your investments are doing and make changes when needed.

Put it all together, and investment portfolio management means actively building and overseeing your collection of investments to help them grow while protecting them from losing too much value (because all investments carry some degree of risk.)

How do people go about investment portfolio management? There are a couple of ways, but one of the most common is to use a managed account.

A managed account is a personalized investment account where a professional financial advisor handles all the investment decisions on your behalf.

Instead of making investment decisions yourself, you delegate the day-to-day investment choices and portfolio adjustments to the advisor, while maintaining ownership of the account and all assets within it.

Your advisor selects and maintains your investment portfolio based on your specific financial goals and risk tolerance.

Learn more: Why Managed Accounts Can Be a Great Way to Start Investing

Investment managers typically charge a percentage of the money they manage for you-- usually between 0.2% to 2% annually. The main benefit? You don't have to worry about making complex investment decisions or keeping up with market changes. This can be especially helpful if you're too busy to manage your own investments or don't feel confident making investment decisions on your own. Essentially, it’s a “hands-off” approach to investing for you.

Investment portfolio management isn’t a one-and-done type of process. It works through a systematic process of planning, execution, and ongoing monitoring of your investments.
The first step is to clearly define your financial objectives. What do you want to achieve with your investments? Are you saving for retirement, a down payment on a house, or your child's education? Knowing your goals will help guide your investment decisions.
Determine your comfort level with risk (also called risk tolerance). How much volatility are you willing to accept in your investments? This can depend on your age (for example, if an investor is close to retirement age, they might choose less risky assets to minimize potential losses on their retirement funds), financial obligations, and personal comfort level. Understanding your risk tolerance will help you choose appropriate asset classes.
To reduce risk, diversify your portfolio by investing in a variety of assets, such as stocks, bonds, real estate, and commodities. Think of this like “not putting all your eggs in one basket.” Picking out a variety of assets helps protect your investments from market fluctuations.
Decide how much of your portfolio to allocate to stocks, bonds, or cash. This depends on your risk tolerance and financial goals. For example, a more aggressive investor might allocate a larger portion of their portfolio to stocks (which are more volatile) while a more conservative investor might prefer bonds.
Regularly review your portfolio's performance and make adjustments as needed. This may involve rebalancing your portfolio to maintain your desired asset allocation or selling underperforming investments
Be aware of the tax implications of your investment decisions. Tax-efficient investing can help maximize your returns.

We’ve looked at managed accounts, but let’s explain mutual funds.

A mutual fund is another type of investment vehicle. It’s a pool of money where you and other investors “mutually” buy stocks, bonds and other investments. When you invest in a mutual fund, you’re not buying the underlying investments, but rather buying shares of this combined pool. They’re run by professional fund money managers who make investment decisions for the entire pool.

While both managed account and mutual funds are typically managed by a professional money manager, they have some key differences:

Personalized to your specific financial goals
Not customized to you; same investment mix for all investors
You own the individual securities
You own shares of the fund itself, not the underlying investments
More flexibility to make specific investment requests or restrictions
Investors cannot influence investment decisions
Typically requires higher minimum investments
Typically requires lower minimum investments
Higher fees in general
Lower fees in general
Typically offers better tax control because managers can make specific trades considering your personal tax situation
Mutual fund investors have no control over taxable distributions

Investment portfolio management services are used by a wide range of investors, but they can generally fall into two categories: individual and institutional investors.

Institutional investors are organizations that pool large sums of money and invest these funds on behalf of its members. Businesses, banks, insurance companies, hedge funds, universities, foundations, and more often use portfolio management to invest their surplus funds, grow their endowments, and support their missions.

Usually, institutional investors have specific financial goals and are under strict regulatory oversight, leading them to be more conservative and sustainable in their investment approaches compared to individual investors.

Learn more: What is sustainable investing?

Unlike institutional investors, which have complex and large-scale portfolios, individual investors are, well, individual. They use investment portfolio management services when they want professional guidance in growing and protecting their wealth on a more personal level.

This includes:

  • Working professionals saving for retirement
  • Individuals growing money for large purchases
  • Adults funding children’s education funds
  • Those building an emergency fund or long-term savings
  • Retirees focused on generating reliable income while preserving their money

While managed investing and active investing share similarities, there are key distinctions between the two:

Managed Investing:

  • Professional Management: A financial advisor oversees your investments, making buy and sell decisions based on your goals and risk tolerance.
  • Customization: The portfolio is tailored to your specific needs and objectives.
  • Higher Fees: Managed investing typically involves higher fees due to the personalized attention.

With a MoneyLion Managed Investing account, you can invest in industries you’re passionate about and set your time horizon and risk levels. We will take care of the rest. Get started with as little as $1, and monthly fees range from $1-$51.

Active Investing:

  • Self-Management: You actively manage your investments, researching securities and making trading decisions.
  • Market Outperformance: The goal is to outperform the market by identifying undervalued or overvalued securities.
  • Higher Risk: Active investing can be more risky due to the frequent trading and potential for underperformance.

MoneyLion WOW members can open an Active Investing2 account, where they can buy and sell stocks and ETFs with zero commission fees. Invest in your favorite companies without buying a whole share on-the-go in the app, and keep track of your investments as they adjust in value. There’s no minimum balance required to open an Active Investing account. You can start investing with as little as $11.

Note: Managed investing and passive investing are not the same thing. Managed investing is a type of investment portfolio management service where a financial advisor builds and monitors your investments for you—the account’s assets are constantly being monitored and adjusted, but the advisor is doing it on your behalf.

On the other hand, passive account management could be performed by you, the investor, or another money manager, but the key difference is the “set it and leave it” approach. You build your portfolio and then hold those assets for the long term.

Active and passive investing are two primary approaches to investing. While both aim to help grow your wealth, they differ significantly in their strategies and objectives.

Active Investing:

  • Involves: Constant monitoring of the market, identifying undervalued or overvalued securities, and making frequent trades to capitalize on short-term price fluctuations.
  • Goal: To outperform the overall market by generating higher returns than a benchmark index.
  • Requires: Extensive research, analysis, and experience.
  • Costs: Typically involves higher fees due to the active management and trading.

Passive Investing:

  • Involves: Buying a broad market index fund or exchange-traded fund (ETF) and holding it for the long term, without actively trading individual securities.
  • Goal: To match the market's average return over time.
  • Requires: Minimal research and monitoring.
  • Costs: Typically involves lower fees due to the passive management approach.

Key Differences:

  • Return: Active investors aim to outperform the market, while passive investors seek to match the market's return.
  • Risk: Active investing can be more risky due to the frequent trading and potential for underperformance.
  • Costs: Active investing typically involves higher fees than passive investing.

Learn more: The great debate: Active vs. passive investing

While managed investing offers many benefits, it also comes with certain challenges:

  1. Fees: Managed investing typically involves higher fees compared to other investment portfolio management services, due to the level of professional management and customization. These fees can cut into your overall returns.
  2. Performance: There's no guarantee that a managed investment strategy will outperform the market or meet your financial goals. Investing always comes with some level of risk.
  3. Alignment with Advisor: It's important to ensure that your advisor understands your risk tolerance, time horizon, and long- and short-term goals.
  4. Control & Flexibility: When you opt for managed investing, you give up direct control over investment decisions. While this can protect you from emotional decision-making, it also means your manager is making the portfolio decisions.
  5. Market Fluctuations: Even the best-managed portfolios can be impacted by market fluctuations. It's important to have realistic expectations and be prepared for potential losses.

Despite these challenges, managed investing can be a valuable strategy for many investors. By understanding the risks involved, you can increase your chances of achieving your financial goals.

How do you determine your risk tolerance?

Risk tolerance is your personal comfort level with investment uncertainty and potential losses. Understanding your risk tolerance is crucial for creating an appropriate investment strategy that lets you sleep at night while working toward your financial goals.

Several key factors that influence your risk tolerance include your time horizon (do you have major upcoming expenses? Or are you planning to build wealth for decades to come?); financial situation (your current income, emergency savings, overall debt, and current financial responsibilities); and personal factors (like your age, retirement timeline, family and health considerations, comfort with risk and uncertainty, and investment knowledge).

Learn more: What Is Market Volatility? 8 Ways to Handle It Like a Pro

Some questions to ask yourself:

  • Are you generally comfortable with risk, or do you prefer a more conservative approach?
  • How well do you handle market volatility and potential losses?
  • Are you willing to take on more risk to achieve your financial goals?

Remember: Your risk tolerance can change over time as your financial situation and life circumstances evolve. It's important to periodically reassess your risk tolerance and make adjustments to your investment portfolio management strategy.

Got big dreams and ready to start investing? You can open a Managed Investing account tailored to your goals with MoneyLion.

Our Managed Investing account was designed to level the investment playing field and provide an easy way to make your money work as hard as you do.

When you sign up, we'll ask you questions and determine a portfolio that makes sense based on your stated preferences.

You add money when you're ready. When you transfer money (as little as $11!) to your Managed Investing account, we'll invest it for you in your personalized portfolio designed by industry experts, personalized to your risk level and time horizon. And we'll manage and rebalance for zero management fees.

We design your personalized asset allocation (your portfolio mix) of stock and bond ETFs based on the risk preferences and investment objectives that you specify when you open your account.

You can add funds to your account on a schedule that works for you with Auto invest, or invest your spare change as you spend on any existing debit and credit cards with Round Ups.

Overall, our portfolio strategy for all members is to help you achieve growth while minimizing large swings in portfolio value and staying in line with your preferences.

Unlike some other managed investment accounts, our Managed Investing account has no ongoing management or trading fees. For example, many investment managers and other online investment platforms charge an asset-based fee, whereby they charge you a percentage of the total value of your account. When you grow your money, they get a cut.

At MoneyLion, we charge no such fees—there are no commission fees for investing or managing your account, just a low monthly account fee between $1-$51 depending on your account balance. And there are no minimums. In short, we help people dream big even if they start small.

If you’re a MoneyLion WOW member, your monthly account fee is waived3.

The power is in your hands. Invest in themes that align with your interests and passions, like technology, innovation, and social responsibility.

If you’re looking for even more control, MoneyLion WOW members can open an Active Investing account! Choose from over 700 stocks and ETFs to invest in—all with zero commission fees.

Whether it’s for retirement, a down payment on a home, or building wealth for future generations, a well-managed portfolio can help you achieve your financial aspirations. By making informed decisions, you can find the right investment portfolio management method for you and work towards a financially secure future.