“Strategic asset management “ is a term that is used to describe a carefully designed plan of action designed to aid in the responsible management of financial assets. The basic idea behind this type of management strategy is to not only make sure that each asset is being utilized to best advantage, but that the total assets included in a portfolio are working together to allow that portfolio to continue increasing in value even if some of the assets experience some sort of temporary downturn. There is no single approach to strategic asset management that is right for every situation, but there are a few basics that are likely to be included in any type of effective and responsible management strategy.
One of the most common aspects of strategic asset management involves achieving a proper balance of assets within the portfolio itself. Sometimes known as asset allocation, this requires careful selection of different types of investments that help to provide stability to the portfolio while also providing the means to grow the value of the assets on a more or less consistent basis. Typically, this means diversifying the types of assets held. Doing so makes it possible to offset losses in one sector of the portfolio with gains in the other sectors. For example, if a portion of the stocks held decline slightly, gains made in real estate holdings or currency trades help to minimize the impact of the loss on the portfolio’s overall value.
Another key tool in strategic asset management is known as asset tracking. This is simply the process of understanding how and why each asset has performed at a certain level in the past, and projecting what events in the future are likely to either cause the asset to increase in value or to experience a decline for a period of time. The tracking also involves day to day monitoring for changes that indicate an upcoming trend with each asset. Doing so makes it possible to make any changes needed to protect the portfolio from long-term declines, up to and including the sale of an asset that is anticipated to enter a period of decline that will last for longer than the investor is comfortable with.
The nature of strategic asset management requires taking into consideration the goals of the investor as well as his or her personal investment philosophy. In order to be truly effective, it is necessary to identify why the investment activity is taking place. For example, the ultimate goal of the investor may be to build assets that provide financing for a child’s college education, or the goal may be financial security after retiring from the workforce. Matching the goals with the level of risk that the investor is willing to assume narrows the focus of what type of investments to include in a portfolio, how much of a percentage to allocate to each one of those investments, and how much trading must be done in order to keep the portfolio moving in the right direction.