Remember when your toughest financial question was, “Can we afford it?”
As wealth starts to build—even just a little bit—things get a lot more complicated:
Are you saving enough for retirement? Is it time to switch insurance? Does an investment match your current level of risk tolerance? What is risk tolerance, anyway?
And here you thought earning was the hard part.
The good news is you don’t have to find answers on your own. Financial planners offer expert advice and coordination at every step of your financial journey. Before you choose a partner, however, it helps to know what type of financial service you need.
Two of the most common services financial planners offer are wealth management and portfolio management. It’s not always easy to tell which is which, especially since the terms get used interchangeably all too often.
While both wealth and portfolio management will help you save, invest, and wisely draw on your accounts—ideally without paying more taxes than you have to—they’re not exactly the same thing.
In this article, we’ll contrast wealth management vs. portfolio management, and explain the surprisingly simple way they relate to one another. Keep reading to figure out which service will help you meet your financial goals.
Not sure whether wealth or portfolio management is right for you? Book a call with Curio Wealth to figure out which services will get you to your goals.
What is portfolio management?
Your portfolio is a collection of financial assets. These assets may include:
- Stocks
- Bonds
- Retirement accounts
- Cash
- Property, art, or other fixed assets
We consider an asset part of your portfolio if it’s an investment—that is, if you’re holding it because you expect it to increase in value; and its expected growth in value is tied to a goal that you have. Simply put, your portfolio contains your investments. So what does it mean to manage this portfolio?
Portfolio management is the process of working with your investments to meet a set of objectives.
Portfolio management should always start with objectives. You must determine your financial goals for yourself. Everyone’s objectives will be a bit different, and they’re not always easy to identify.
The following example illustrates why goal identification can be tricky.
Identifying Long-Term Financial Goals
You probably want your portfolio to help support a comfortable lifestyle through retirement. That’s a common objective, but it’s not as simple as naming a certain sum.
If you say, “I just need $40,000 per year for 30 years,” that’s a start. But it’s not exactly true that you need $40,000 per year. What you need is purchasing power equivalent to $40,000 in today’s dollars.
Twenty years from now, that could be $80,000.
Meanwhile, interest rates are always fluctuating. A simple 4% return on a $1 million portfolio may look good for today, but don’t expect it to hold. To maintain the same purchasing power through your investments, you need ongoing portfolio management that maintains the target growth rate.
A good portfolio manager will help you create a collection of assets that moves with macroeconomic forces—inflation, interest rates, and many more—to meet your objectives for the long-term.
Of course, outpacing inflation is just one part of a strategy for meeting this goal. You also have to consider things like:
- Taxes
- Non-investment income
- Financial instruments
- Business interests
- Insurance
To make matters even more complicated, there’s a whole universe of factors that don’t make it onto the balance sheet (think life events, charitable interests, family obligations, etc.) Those are essential to your lifetime financial plan, too.
In short, portfolio management alone is rarely enough to meet your big financial goals.
To plan for success, you must take a broader view of your financial life—one that goes way beyond investments alone. That’s what wealth management offers.
What is wealth management?
Wealth management is the holistic practice of taking care of financial resources in alignment with your objectives.
A good wealth manager will help you nurture your complete financial life, including the intersections between resources and everything that’s important to you. That could simply mean maintaining a comfortable lifestyle during retirement. Maybe it includes supporting dependents, paying for college, or starting a charitable foundation.
As always, the goals are up to you—but wealth management services can help you arrange your resources to execute any plan. That involves consideration of your portfolio as well as many other factors.
In addition to investments, wealth management often includes the following elements:
- Cash flow (i.e., income from work, investments, benefits, etc.)
- The three P’s of taxes: planning, preparation, and paying
- Risk management, including but not limited to insurance
- Estate planning
- Gifting strategies
- Other considerations involving material resources and their use
By now, the difference between portfolio and wealth management should be coming into focus. Here’s what you need to know to decide which service to ask for.
Comparing Wealth Management Vs. Portfolio Management
If you have to choose between wealth and portfolio management, you’re better served with the more comprehensive service: wealth management.
Wealth includes all your financial assets, including (but, crucially, not limited to) investments. That’s why it’s best to think of portfolio management as a subset of wealth management, an important part of a broader whole—but not the whole itself. And to meet long-term objectives, you need to consider the full picture of your finances.
So in our view, the question isn’t really “Do I need wealth management or portfolio management?” It’s “How can portfolio management and wealth planning work together?”
To find out, try wealth management services from advisors who always keep the big picture in focus.
Real-Life FinancesHere’s just one example of how a broader view of wealth management can inform portfolio choices: A client came to us with a substantial inheritance, which made up the majority of their investable assets. The inheritance was extremely concentrated, with stock shares from about 50 companies all based in the U.S. We offered a plan to diversify the portfolio. What we didn’t yet know was that the client had an objective that wouldn’t show up on a balance sheet. “This is a financial legacy inherited from my father,” the client said. “He was proud of his portfolio, and there were a few companies he was really passionate about. We want to continue the legacy of holding those companies.” Wealth management is always about meeting the client’s objectives, whether that’s building wealth or honoring a loved one’s wishes. For us, it is essential to work not only with our clients assets, but with our clients values. We diversified the portfolio while keeping the legacy holdings in place, balancing this goal with other objectives, from tax implications to cash needs to expenses and more. |
Getting Help With Wealth and Portfolio Management
A good wealth manager is also a portfolio manager. It’s not a question of wealth management vs. portfolio management, but both at once.
At Curio Wealth, we take a goal-oriented approach to financial planning. You set the objectives, and we’ll help you make and execute a plan that works—whether that means working with investments, taxes, estates, or any other part of your financial life.
As a fee-only fiduciary firm, you’ll never get caught off guard by a hefty commission or surprise charge. And our financial advisors are happy to answer your questions for free.
