Portfolio Management and Financial Planning: Knowing the Difference

John Labunski Best Investment Advice

There are a multitude of financial advisors on the market. Employing the services of one of them can be extremely beneficial for a person wishing to achieve an investment goal or other financial goals. It is important to know what types of services are provided by the finance professional based on your financial goals.

Financial planning and portfolio management

Although it is common to use the terms “portfolio management” and “financial planning” interchangeably, these basic elements of the financial services industry are not the same. Portfolio management involves creating and maintaining an investment account, while financial planning involves developing overall financial goals and creating an action plan to achieve them.

In the industry, portfolio managers generally have more experience and are further along in their careers as they have to deal with the complexities of investing. Financial planners typically start in more junior roles.

Financial planners and portfolio managers may have the same designations, but specific certification is not required. These designations will typically include a Chartered Financial Analyst (CFA), Certified Financial Planner or Chartered Financial Consultant. Understanding the differences between the two types of advisors will help you choose the most suitable financial professional for your needs.

Financial planning

Financial planning is a more in-depth process than portfolio management. It is an assessment of an individual’s overall financial situation with the goal of developing long-term financial goals. Financial planning covers many areas such as creating an emergency fund, saving for a new home or reducing debt, accumulating retirement assets, saving for the retirement fund. a child’s college, estate planning or creating tax efficiency .

Before creating a comprehensive financial plan, one should take stock of their entire net worth. This would include an appraisal of all assets, such as real estate, savings, retirement accounts, investment accounts, and any outstanding debt.

Portfolio Management

Portfolio management is provided by finance professionals who create and recommend portfolios of stocks, bonds, mutual funds, exchange-traded funds (ETFs), or alternative investments to meet investment objectives of a specific investor. Portfolio managers make day-to-day business decisions on a portfolio of assets, while a financial planner makes recommendations on certain products based on the individual’s goals.

Professionals who perform portfolio management focus on meeting investors’ needs through the rate of return achieved within a portfolio and they are often responsible for rebalancing the account to stay in line with allocation preferences and the investor’s risk tolerance.

An important difference between financial planners and portfolio managers is that portfolio managers are bound by the concept of fiduciary duty . They are intended to manage the client’s investments in good faith and to prioritize the interests of the client in any investment decision.

The bottom line

At the most basic level, financial planning involves managing and budgeting for your future financial needs contact us John Labunski Best Investment Advice, while portfolio management invests your current capital to grow your wealth.

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