DAY 8

What is Asset Management?

Asset management is the process of developing, operating, maintaining, and selling assets in a cost-effective
manner. Most commonly used in finance, the term is used in reference to individuals or firms that manage assets
on behalf of individuals or other entities.

Every company needs to keep track of its assets. That way, the relevant stakeholders will know just what assets
are available and what can be used to provide optimal returns. The assets owned by any business fall into two
main categories: fixed and current assets. Fixed or non-current assets refer to assets acquired for long-term use,
while current assets are those that can be converted into cash within a short amount of time.

When it comes to asset management, there are two main things that individuals are interested in knowing. One,
what role does the asset management process play? Two, how can a firm develop a good asset management
plan?

How Does Asset Management Work?

An asset management company serving as an advisor to a client has one overriding goal -- to substantially grow
its client's portfolio. Asset managers are often hired by institutional investors like pension funds, corporations,
and financial intermediaries, as well as high net worth individuals.
Asset managers conduct research, interviews, and statistical analyses of companies, markets, and trends in order
to determine what investments to make or avoid on behalf of their clients. Asset managers do not generally need
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"asset manager" licenses, though the firms that hire these managers often require registration with one or more
exchanges and/or the National Association of Securities Dealers (NASD).
In corporate finance, asset management requires finding ways to maximize a company's value by managing fixed
and intangible assets to be more reliable, efficient, or cheaper -- including evaluating asset financing options,
asset accounting methods, productions operation management, and maintenance discipline.

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The Importance of Asset Management
Although most financial jobs don't carry an official "asset manager" title, the truth is that nearly everyone in the
finance world is an asset manager.
As a result, most financial professionals are judged on their ability to successfully manage assets -- either directly
or indirectly. Proficiency in asset management makes the difference between a mediocre and a stellar
performance at both the individual and corporate levels.

There are several reasons why businesses should be concerned about asset management, including:

1. Enables a firm to keep tabs on all of its assets

The process makes it easy for organizations to keep track of their assets, whether liquid or fixed. Firm owners will
know where the assets are located, how they are being put to use, and whether there are changes made to them.
Consequently, the recovery of assets can be done more efficiently, hence, leading to higher returns.

2. Helps guarantee the accuracy of amortization rates

Since assets are checked on a regular basis, the process of asset management ensures that the financial
statements associated with them are kept updated.

3. Helps identify and manage risks

Asset management encompasses the identification and management of risks that arise from the utilization and
ownership of certain assets. This means that a firm will always be prepared to counter any risk that comes its
way.

4. Removes ghost assets in the company’s inventory

Instances exist where lost, damaged, or stolen assets are still recorded on the books. With a strategic asset
management plan, the firm’s owners will be aware of the assets that have been lost and, thus, not keep recording
them in the books.

Developing a Strategic Asset Management Plan

Asset ownership is part of any public or private enterprise. To manage the assets effectively, a firm owner needs
to develop a strategic plan.

1. Complete an Asset Inventory

Before anything else, an owner needs to take count of all the assets that he owns. If he is not aware of the exact
number of assets in his inventory, then he won’t manage them effectively. When preparing an inventory of
company assets, the following should be included:

● Total count of assets

● Where the assets are
● The value of each asset
● When the assets were acquired
● The expected life cycles of the assets

2. Compute Life-Cycle Costs

If a business owner wants his asset management plan to be precise, then he should calculate the entire life-cycle
costs of each asset. Many company owners make the mistake of calculating only the initial purchase costs.

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During the asset’s life cycle, additional costs are likely to come up such as maintenance expenses, condition and
performance modeling, as well as disposal costs.

3. Set Levels of Service

After computing the life-cycle costs, the next step is to set levels of service. Put simply, it means outlining the
overall quality, capacity, and role of the different services that the assets provide. In doing so, a firm’s owner can
then determine the operating, maintenance, and renewal activities needed to keep the assets in good condition.

4. Exercise Long-term Financial Planning

Ideally, the asset management process that a firm owner adapts should easily translate into long-term financial
plans. With a good financial plan in place, the owner can then assess which objectives are feasible, and which
ones need to be prioritized.

Benefits of Asset Management

There are many benefits of adopting an asset management strategy, such as:

1. Improving Acquisition and Use

By keeping tabs on a company’s assets throughout their life cycle, a firm owner can improve their technique of
acquiring and using assets. A good case in point is Cisco Systems, which was able to reduce costs by executing PC
asset management. When implementing such a strategy, the company discovered wasteful purchasing practices,
which it solved by developing a better strategy for buying the equipment needed by workers.

2. Improving Compliance
Government agencies, non-profit organizations, and companies are required to provide comprehensive reports
on how they acquire, utilize, and dispose of assets. To ease the reporting process, a majority of them record their
asset information in a central database. In such a way, when they need to compile the reports at the end of their
financial year, they can easily access all the information they need.

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Day 10

Individual Asset Management - WEALTH MANAGEMENT

Asset management for individuals is roughly synonymous with wealth management. It refers to managing an
individual’s investments or estate.

What Is Wealth Management?

Wealth management is an investment advisory service that combines other financial services to address the
needs of affluent clients. It is a consultative process whereby the advisor gleans information about the client's
wants and tailors a bespoke strategy utilizing appropriate financial products and services.

A wealth management advisor or wealth manager is a type of financial advisor who utilizes the spectrum of
financial disciplines available, such as financial and investment advice, legal or estate planning, accounting, and
tax services, and retirement planning, to manage an affluent client's wealth for one set fee. Wealth management
practices differ depending on the nation, such as if you are in the United States versus Canada.

Understanding Wealth Management

Wealth management is more than just investment advice, as it can encompass all parts of a person's financial life.
The idea is that rather than trying to integrate pieces of advice and various products from a series of
professionals, high net worth individuals benefit from a holistic approach in which a single manager coordinates
all the services needed to manage their money and plan for their own or their family's current and future needs.

While the use of a wealth manager is based on the theory that he or she can provide services in any aspect of the
financial field, some choose to specialize in particular areas. This may be based on the expertise of the wealth
manager in question, or the primary focus of the business within which the wealth manager operates.

In certain instances, a wealth management advisor may have to coordinate input from outside financial experts as
well as the client's own agents (attorney, accountants, etc.) to craft out the optimal strategy to benefit the client.
Some wealth managers also provide banking services or advice on philanthropic activities.

A wealth management advisor needs affluent individuals, but not all affluent individuals need a wealth
management advisor. This service is usually appropriate for wealthy individuals with a broad array of diverse
needs.

KEY TAKEAWAYS
● Wealth management is an investment advisory service that combines other financial services to address
the needs of affluent clients.
● A wealth management advisor is a high-level professional who manages an affluent client's wealth for
one set fee.
● Affluent clients benefit from a holistic approach in which a single manager coordinates all the services
needed to manage their money and plan for their own or their family's current and future needs.
● This service is usually appropriate for wealthy individuals with a broad array of diverse needs.

Wealth Management Example

For example, those in the direct employ of a firm known for investments may have more knowledge in the area of
market strategy, while those working in the employ of a large bank may focus on areas such as the management
of trusts and available credit options, overall estate planning or insurance options. The position is considered
consultative in nature, as the primary focus is providing needed guidance to those using the wealth management
service.

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Wealth Management Business Structures
Wealth managers may work as part of a small-scale business or as part of a larger firm, one generally associated
with the finance industry. Depending on the business, wealth managers may function under different titles,
including financial consultant or financial adviser. A client may receive services from a single designated wealth
manager or may have access to members of a specified wealth management team.

Strategies of a Wealth Manager

The wealth manager starts by developing a plan that will maintain and increase a client's wealth based on that
individual's financial situation, goals and comfort level with risk. After the original plan is developed, the manager
meets regularly with clients to update goals, review and rebalance the financial portfolio, and investigate whether
additional services are needed, with the ultimate goal being to remain in the client’s service throughout their
lifetime.

Summary
Asset management is simply a system that helps companies keep track of all their assets, such as vehicles,
equipment, and investments. Keeping tabs on the assets helps streamline operations, especially in relation to
their sale or disposal. The process also minimizes the chance of recording ghost assets since all the available
assets are well accounted for.

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DAY 11

Portfolio and Portfolio Management - Meaning and Important Concepts

It is essential for individuals to invest wisely for the rainy days and to make their future secure.

What is a Portfolio ?

A portfolio refers to a collection of investment tools such as stocks, shares, mutual funds, bonds, cash and so on
depending on the investor’s income, budget and convenient time frame.

Following are the two types of Portfolio:

1. Market Portfolio
2. Zero Investment Portfolio

What is Portfolio Management ?

The art of selecting the right investment policy for the individuals in terms of minimum risk and maximum return
is called as portfolio management.

Portfolio management refers to managing an individual’s investments in the form of bonds, shares, cash, mutual
funds etc so that he earns the maximum profits within the stipulated time frame.

Portfolio management refers to managing money of an individual under the expert guidance of portfolio
managers.

In a layman’s language, the art of managing an individual’s investment is called as portfolio management.

Need for Portfolio Management

1. Portfolio management presents the best investment plan to the individuals as per their income, budget,
age and ability to undertake risks.
2. Portfolio management minimizes the risks involved in investing and also increases the chance of making
profits.
3. Portfolio managers understand the client’s financial needs and suggest the best and unique investment
policy for them with minimum risks involved.
4. Portfolio management enables the portfolio managers to provide customized investment solutions to
clients as per their needs and requirements.

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Types of Portfolio Management

Portfolio Management is further of the following types:

● Active Portfolio Management: As the name suggests, in an active portfolio management service, the
portfolio managers are actively involved in buying and selling of securities to ensure maximum profits to
individuals.
● Passive Portfolio Management: In a passive portfolio management, the portfolio manager deals with a
fixed portfolio designed to match the current market scenario.
● Discretionary Portfolio management services: In Discretionary portfolio management services, an
individual authorizes a portfolio manager to take care of his financial needs on his behalf. The individual
issues money to the portfolio manager who in turn takes care of all his investment needs, paper work,
documentation, filing and so on. In discretionary portfolio management, the portfolio manager has full
rights to take decisions on his client’s behalf.
● Non-Discretionary Portfolio management services: In non discretionary portfolio management services,
the portfolio manager can merely advise the client what is good and bad for him but the client reserves
full right to take his own decisions.

Who is a Portfolio Manager ?

An individual who understands the client’s financial needs and designs a suitable investment plan as per his
income and risk taking abilities is called a portfolio manager.

1. A portfolio manager is one who invests on behalf of the client.

2. A portfolio manager counsels the clients and advises him the best possible investment plan which would
guarantee maximum returns to the individual.
3. A portfolio manager must understand the client’s financial goals and objectives and offer a tailor made
investment solution to him. No two clients can have the same financial needs.

Professional licensed portfolio managers work on behalf of clients, while individuals may choose to build and
manage their own portfolios. In either case, the portfolio manager's ultimate goal is to maximize the investments'
expected return within an appropriate level of risk exposure.

Portfolio management may be either passive or active in nature.

● Passive management is a set-it-and-forget-it long-term strategy. It may involve investing in one or more
exchange-traded (ETF) index funds. This is commonly referred to as indexing or index investing. Those
who build Indexed portfolios may use modern portfolio theory (MPT) to help optimize the mix.
● Active management involves attempting to beat the performance of an index by actively buying and
selling individual stocks and other assets. Closed-end funds are generally actively managed. Active
managers may use any of a wide range of quantitative or qualitative models to aid in their evaluations of
potential investments.

KEY TAKEAWAYS
● Portfolio management involves building and overseeing a selection of investments that will meet the
long-term financial goals and risk tolerance of an investor.
● Active portfolio management requires strategically buying and selling stocks and other assets in an effort
to beat the broader market.
● Passive portfolio management seeks to match the returns of the market by mimicking the makeup of a
particular index or indexes.
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Key Elements of Portfolio Management

Asset Allocation
The key to effective portfolio management is the long-term mix of assets. Generally, that means stocks, bonds,
and "cash" such as certificates of deposit. There are others, often referred to as alternative investments, such as
real estate, commodities, and derivatives.

Asset allocation is based on the understanding that different types of assets do not move in concert, and some
are more volatile than others. A mix of assets provides balance and protects against risk. Investors with a more
aggressive profile weight their portfolios toward more volatile investments such as growth stocks. Investors with
a conservative profile weight their portfolios toward stabler investments such as bonds and blue-chip stocks.

Diversification
The only certainty in investing is that it is impossible to consistently predict winners and losers. The prudent
approach is to create a basket of investments that provides broad exposure within an asset class.

Diversification is spreading risk and reward within an asset class. Because it is difficult to know which subset of an
asset class or sector is likely to outperform another, diversification seeks to capture the returns of all of the
sectors over time while reducing volatility at any given time.

Real diversification is made across various classes of securities, sectors of the economy, and geographical regions.

Rebalancing
Rebalancing is used to return a portfolio to its original target allocation at regular intervals, usually annually. This
is done to reinstate the original asset mix when the movements of the markets force it out of kilter.

For example, a portfolio that starts out with a 70% equity and 30% fixed-income allocation could, after an
extended market rally, shift to an 80/20 allocation. The investor has made a good profit, but the portfolio now has
more risk than the investor can tolerate.

Rebalancing generally involves selling high-priced securities and putting that money to work in lower-priced and
out-of-favor securities.

The annual exercise of rebalancing allows the investor to capture gains and expand the opportunity for growth in
high potential sectors while keeping the portfolio aligned with the original risk/return profile.

Active Portfolio Management

Investors who implement an active management approach use fund managers or brokers to buy and sell stocks in
an attempt to outperform a specific index, such as the Standard & Poor's 500 Index or the Russell 1000 Index.

An actively managed investment fund has an individual portfolio manager, co-managers, or a team of managers
actively making investment decisions for the fund. The success of an actively managed fund depends on a
combination of in-depth research, market forecasting, and the expertise of the portfolio manager or management
team.

Portfolio managers engaged in active investing pay close attention to market trends, shifts in the economy,
changes to the political landscape, and news that affects companies. This data is used to time the purchase or sale
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of investments in an effort to take advantage of irregularities. Active managers claim that these processes will
boost the potential for returns higher than those achieved by simply mimicking the holdings on a particular index.

Trying to beat the market inevitably involves additional market risk. Indexing eliminates this particular risk, as
there is no possibility of human error in terms of stock selection. Index funds are also traded less frequently,
which means that they incur lower expense ratios and are more tax-efficient than actively managed funds.

Passive Portfolio Management

Passive portfolio management, also referred to as index fund management, aims to duplicate the return of a
particular market index or benchmark. Managers buy the same stocks that are listed on the index, using the same
weighting that they represent in the index.

A passive strategy portfolio can be structured as an exchange-traded fund (ETF), a mutual fund, or a unit
investment trust. Index funds are branded as passively managed because each has a portfolio manager whose job
is to replicate the index rather than select the assets purchased or sold.

The management fees assessed on passive portfolios or funds are typically far lower than active management
strategies.

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