Setting Objectives and Risk Considerations

What is an Investment Management Account (IMA)?

An Investment Management Account, or IMA, is a comprehensive investment solution overseen by a portfolio manager or financial advisor. It encompasses a variety of investment options, including stocks, bonds, and mutual funds. When you open an IMA, you can collaborate with a Financial Advisor or Portfolio Manager to establish an investment strategy aligned with your goals and risk tolerance. Subsequently, the advisor diligently manages your account, ensuring ongoing synchronization with your objectives and risk tolerance. Overall, an IMA can be a great solution for those who want to play an active role in their investments but do not have the time or expertise to manage them.
 

Setting Personal Investment Objectives in an Investment Management Account

The first step in optimizing your IMA is to set clearly defined objectives. Your objectives should be realistic and attainable, taking into account factors such as the amount of risk you are comfortable with, the rate of return you need, and any additional requirements such as environmental concerns or tax considerations. Setting clear investment objectives is a fundamental aspect of any successful investment plan. Objectives for an IMA can vary, depending on individual needs and preferences. For instance, some investors may seek capital growth, while others may be interested in generating income from their investments or a combination of both.

Capital growth is a popular objective among investors looking to build wealth over the long term. Achieving this objective requires investments in high-growth areas such as emerging markets, technology, and healthcare. Emerging markets have vast potential for growth due to their demographic profiles and rapidly developing economies. Technology is driving innovations and disruptions in various sectors of the economy, while healthcare is experiencing monumental advancements in research and development.

Investors seeking to generate immediate cash flow from their investments can benefit from income objectives. Income-generating assets such as bonds and preferred stocks are stable and have high yields, making them ideal for those who need immediate cash flow. Bonds provide periodic payments of interest while preferred stocks have fixed dividends, all of which go toward generating income for the investor.

Investors with a combination of both capital growth and income objectives require a diversified portfolio of high-growth and income-generating assets. By combining these two investment objectives, investors can maximize returns while minimizing risk. For example, investing in a mix of dividend-paying stocks and growth-oriented equities could help investors achieve both their long-term capital growth and income objectives simultaneously. By outlining their individual needs and preferences, investors can develop a targeted investment strategy that reflects their unique circumstances.
 

Risk Considerations of an Investment Portfolio

The risk management approach to investing varies from person to person. Your willingness to take on risk depends on your investment goals, age, and other financial circumstances. Risk tolerance is the degree of variability you can tolerate in the value of your portfolio. Put merely, how much loss are you willing to endure in the pursuit of higher gains?

Market risk, where investments’ value can fluctuate based on market conditions, is a significant risk. Liquidity risk is a concern with IMA accounts, as some investments may take longer to sell and could lead to losses if funds are needed urgently. Changes in interest rates can also affect the value of fixed-income investments, posing an interest rate risk.

Age is another important consideration in financial planning and risk management. Young investors often have more capacity and willingness to take on risk. They may have a more extended investment horizon, which means that they have more time to recover from potential losses and regain lost profits. In contrast, investors approaching retirement may want to consider a more conservative portfolio.  A loss to their capital could seriously impact their retirement plans and diminish their ability to achieve their desired goals.

Moreover, employment status and income level are key considerations. Individuals with a stable, higher income may have the means to take on greater risks than those with limited income or an unreliable income source. Individuals with limited income may prefer to adopt a more conservative strategy with an emphasis on preserving their capital. By taking the time to understand your risk tolerance, you can make informed decisions and create a tailored investment plan that aligns with your goals.
 

Diversification and Asset Allocation

Diversification and asset allocation are fundamental principles in investment management designed to minimize risk and optimize return. Diversification entails investing in a broad range of assets across different asset classes and industries rather than investing in a single asset or company. It shields investors from exposure to any single asset, reducing their vulnerability to any one market downturn or negative company-specific news.

Asset allocation refers to the process of dividing the investment portfolio among different asset classes, such as stocks, bonds, and real estate, in order to maximize returns while minimizing risk. Investors can choose the amount of money they allocate to each asset class based on their risk tolerance, investment objectives, and timeline. Portfolio managers or financial advisors generally have access to a wider range of investment options than individual investors. This means that you’ll be able to take advantage of investment opportunities that you may not have been able to access otherwise.

For instance, an investor seeking high returns could opt to allocate more of their portfolio to stocks, which carry more risk and can provide higher returns over a long-term period. Conversely, a conservative investor seeking lower-risk investments could allocate more to bonds or other fixed-income assets. Moreover, investors can diversify their holdings by investing in real estate, commodities, and other alternative assets. These asset classes tend to have lower correlations to stocks and bonds, and therefore, provide another level of protection from market volatility.

In summary, diversification and asset allocation are the primary tools investors use to manage risk and increase returns in an investment portfolio. Effective implementation of these principles involves careful asset selection, monitoring, and rebalancing.
 

Creating and Monitoring an Investment Management Account

Portfolio Managers and Financial Advisors play a significant role in creating and monitoring IMAs. They possess the knowledge, expertise, and experience required to help individuals make informed investment decisions and build a portfolio that aligns with their financial goals and risk tolerance.

To create an IMA, an advisor first assesses the client’s financial situation, investment objectives, and risk tolerance level. Based on this information, the advisor develops a plan that includes asset allocation, investment options, and diversification strategies. The goal is to create a customized portfolio that reflects the client’s financial goals and manages risk while generating a return.

Next, the advisor monitors the IMA regularly. This means carefully tracking the performance of the investments in the portfolio, evaluating the economic environment, and reviewing the client’s financial situation and investment goals. Monitoring helps ensure that the IMA remains aligned with the client’s objectives, adjusts to changing market conditions, and rebalances the portfolio if necessary.

Advisors use a range of tools and techniques to monitor an IMA effectively, including performance reporting, benchmarking, and risk analysis. Additionally, they can leverage technology to track investments in real-time, access research and market insights, and provide customized portfolio analysis to clients.

Ultimately, working with a Portfolio Manager or Financial Advisor can provide investors with invaluable peace of mind and help them navigate the complexities of investment management. Advisors can also help investors make informed decisions and provide insights into market trends and other industry developments.

At Everwise, we are committed to delivering the highest standard of investment management and fiduciary services to our clients. We partner with Financial Advisors across the country with the gold standard in investment management. By working closely with our clients to establish clear objectives, define risk tolerance, and select appropriate investment products, we help investors achieve their objectives and build a better financial future.

Our approach to wealth management is sustainable and responsible, suitable for clients with long-term financial goals and those who want to leave a lasting legacy for future generations. We hold ourselves to the highest standards of fiduciary responsibility and act solely in the best interests of our clients at all times. We understand the importance of transparency, accountability, and open communication, and we strive to ensure that our clients are well-informed and confident in the decisions we make on their behalf. Whether it’s planning for retirement, funding a child’s education, or leaving a charitable legacy, we are committed to helping our clients achieve their financial objectives and secure a better tomorrow. To learn more about our investment management services, contact us.