Month: May 2009

Asset management seems like a fancy term for people who are not much into investing and into business but the truth is, it is something that all people need to survive the rising costs of living and inflation rates.

The concept is actually similar in a way to putting the money that you earn in banks but the difference is, asset management makes use of stocks, mutual funds, properties and bonds to further increase your wealth and assets. You see, putting your money in the bank is not enough. You can only do this for the money that you feel you will need during emergencies. You can put it there and let it earn a small interest, so that you can easily withdraw It when you need it.

For the extra money that you have that you donít really need, invest it. Mutual funds, bonds and stocks yield higher rewards than the measly interests that banksí provide. In just a few years, you can earn half of what you invested, something that you canít do with the bank.

But before you get into asset management and hire yourself a professional, read through the items below to help orient yourself to the field of investing.

1. There are a lot of scams and con artists in the world

Money can make people do things that they will not normally do. This is a fact of life that you need to know before you start hiring somebody to handle your assets and properties. That way, you will be more careful when looking for asset managers.

When hiring somebody, make sure that you have done some background checks on the person first. As far as possible, hire only those that you know personally. If you donít know anyone who can handle your finances, ask the people that you know to make recommendations. Start with your family and friends as they will give you a good recommendation.

But before you hire the guy, set up a meeting first. Even if he or she is recommended by your most trusted friend, you cannot be too sure.

And after you have hired him or her, still take an active part with the investing of your money. Make sure that you are informed about every investment made. Do not give full power to the asset manager to decide on investing issues. Your approval must always be asked before making an investment.

2. Diversify

This is the golden rule that asset managers go by. Diversification means that you need to put investments in more than one product and not in one investment product. The yield can be good but it isnít worth it to risk your entire savings in one go.

If your asset manager has not done this, think twice before continuing the service. The adage “Do not put all your eggs in one basket” holds true for this field. You see, investments can also be very risky. Even those that are considered a surefire success can suddenly fold, leaving you with big losses.

That is why you need to make sure that you have something to fall back on if one investment falls through. If you diversified your investments in asset management, you can still count on your other investments to prop you up on your feet again.

One drawback to certain types of diversification is that some markets are interlocked. For instance, the stock market and bond markets will generally go in opposite directions. So investing in both will pretty much guarantee that if you are gaining in one, you will be losing in the other and achieving zero growth at best. Stocks are generally more volatile than bonds. If stocks drop they will generally lose value much more rapidly than any gains in the bond market.

3. Greed versus Need

In any plan for investing, you should always set clear goals and guide your decisions on what you need rather than what you want. How much risk can you afford? The greater risks must be balanced by a realistic expectation of greater gains but you have to ask yourself if you can afford the great losses that might result.

One crucial aspect in any investment decision is an accurate risk assessment using the best information you can get. But research as you will, there will always be information that you can’t get or circumstances you can’t predict. So your assments will always be inaccurate, perhaps disastrously so.