Knowledge hub

What is investment and portfolio management? Understand key distinctions

Back to insights

By Capital Partners Markets and Investments

The financial landscape is complex, especially when it comes to investing and portfolio management.

While the two are closely related, they each play distinct roles. Let’s dive into how understanding these concepts can help you achieve your financial goals and which might be best for you.

Defining investment management

Investment management refers to the process of managing financial assets and other investments.

This includes buying and selling investments, managing a portfolio’s asset allocation, and monitoring the overall performance of investments. The goal of investment management is to maximise returns while minimising risk.

Key components of investment management

  1. Asset allocation: Determining the right mix of asset classes (e.g., stocks, bonds, real estate) based on your risk tolerance, time horizon, and financial goals.
  2. Security selection: Choosing specific investments within each asset class that align with your investment strategy.
  3. Portfolio monitoring: Regularly reviewing and adjusting your portfolio to ensure it remains aligned with your financial goals and market conditions.
  4. Risk management: Implementing strategies to minimise potential losses, such as diversification and hedging.

Defining portfolio management

Portfolio management is a broader concept that encompasses investment management but also includes the oversight of an entire portfolio of assets.

Portfolio management focuses on achieving a balance between risk and return that aligns with an investor’s overall financial objectives. It involves continuous monitoring and adjusting of the portfolio to respond to changes in market conditions and personal circumstances.

Key components of portfolio management

  1. Comprehensive planning: Developing a detailed investment plan that considers your financial goals, risk tolerance, and investment time horizon.
  2. Diversification: Spreading investments across various asset classes and sectors to reduce risk.
  3. Performance measurement: Evaluating the performance of the portfolio against benchmarks and objectives to ensure it is on track.
  4. Rebalancing: Adjusting the portfolio periodically to maintain the desired asset allocation and risk level.
  5. Tax optimisation: Implementing strategies to minimise tax liabilities and enhance after-tax returns.

What is the difference between investment and portfolio management?

While investment and portfolio management are closely related, they serve different purposes.

Scope and focus

Investment management primarily focuses on selecting and managing individual investments within a portfolio.

It involves making decisions about which securities to buy or sell and when to do so. Portfolio management, on the other hand, takes a broader view, overseeing the entire portfolio to ensure it aligns with the investor’s overall financial goals and risk tolerance.

Strategic approach

Investment management is often more tactical, involving specific decisions about individual investments. Portfolio management is more strategic, involving the overall planning and management of a diverse portfolio of assets to achieve long-term financial objectives.

Risk management

Both investment and portfolio management involve risk management, but they approach it differently.

Investment management focuses on managing risk at the level of individual securities, while portfolio management considers the risk of the entire portfolio and how different investments interact to affect overall risk.

Personalisation

Portfolio management tends to be more personalised, taking into account an investor’s entire financial situation, goals, and risk tolerance. Investment management can be more focused on achieving specific investment objectives without necessarily considering the broader financial picture.

Making the right choice for your needs

Understanding investment and portfolio management can help you determine which service is right for you.

If you need help selecting and managing specific investments, investment management might be the best fit.

If you require a comprehensive strategy that oversees your entire portfolio and aligns with your long-term financial goals, portfolio management could be more suitable.

Choosing the right service depends on your financial situation, goals, and the level of support you need. Both investment and portfolio management play crucial roles in enhancing your financial well-being, but the right choice will ensure you receive the appropriate level of service and expertise to meet your unique needs.

At Capital Partners, we specialise in portfolio management, offering bespoke services tailored to the unique needs of affluent Australian families. With over 25 years of experience, we provide comprehensive strategies to grow and protect your wealth. Contact us to learn how our expertise can help you achieve your financial goals.

The information provided on this site is of a general nature only and may not be relevant to your particular circumstances. The circumstances of each investor are different and you should seek advice from a financial planner who can consider if these strategies and products are right for you.

Ideas & insights

Knowledge Hub