money management

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Money Management

What Is Money Management?

Money management is the process of budgeting, saving, investing, spending or otherwise overseeing the capital usage of an individual or group. The predominant use of the phrase in financial markets is that of an investment professional making investment decisions for large pools of funds, such as mutual funds or pension plans. Money management can also be referred to more narrowly as „investment management“ and „portfolio management.“

The Basics of Money Management

Money management is a broad term that involves and incorporates services and solutions across the entire investment industry. In the market, consumers have access to a wide range of resources and applications that allow them to individually manage nearly every aspect of their personal finances. As investors’ increase their net worth they also often seek the services of financial advisors for professional money management. Financial advisors are typically associated with private banking and brokerage services, offering support for holistic money management plans that can involve estate planning, retirement and more.

Investment company money management is also a central aspect of the investment industry overall. Investment company money management offers individual consumers investment fund options that encompass all investable asset classes in the financial market. Investment company money managers also support the capital management of institutional clients, with investment solutions for institutional retirement plans, endowments, foundations and more.

In the growing financial technology market, personal finance apps exist to help consumers with nearly every aspect of their personal finances.

Key Takeaways

  • Money management broadly refers to the process of budgeting, investing, saving, and spending with one’s finances.
  • Financial advisors and personal finance apps are increasingly common in helping individuals manage their money better.
  • Sometimes money management refers more narrowly to investment or portfolio management.

Top Money Managers by Assets

Global investment managers offer retail and institutional investment management funds and services that encompass every investment asset class in the industry. Two of the most popular types of funds include actively managed funds and passively managed funds replicating specified indexes with low management fees.

The list below shows the top 5 global money managers by assets under management ($M) as of Q1 2020:

The Vanguard Group

The Vanguard Group is one of the most well-known investment management companies, catering to over 20 million clients across 170 countries. Vanguard was founded by John C. Bogle in 1975, in Valley Forge, Pennsylvania, as a division of Wellington Management Company, where Bogle was previously chairman. Since its launch, Vanguard has grown its total assets to $5.1 trillion as of October 2020. Of its 388 funds, 180 are U.S. funds, including the popular 500 Index and Total Stock Market funds.

Pacific Investment Management Company, LLC

Global asset management firm Pacific Investment Management Company LLC (PIMCO) was co-founded in 1971, in Newport Beach, California, by bond king Bill Gross. Since inception, PIMCO has grown its assets under management (AUM) to $1.77 trillion as of October 2020. The firm houses over 775 investment professionals, each averaging 14 years of investment experience. With over 100 funds under its banner, PIMCO is widely regarded as a leader in the fixed income sector.

BlackRock, Inc.

In 1988, BlackRock Inc. (BLK) was launched as a $1 division of the BlackRock Group. By the end of 1993, it boasted $17 billion in AUM. By October of 2020, that number swelled to a whopping $6.32 trillion, making BlackRock the world’s largest investment management firm, with over 12,000 employees, in 70 offices, across 30 countries. BlackRock’s ETF division, called iShares, has approximately $1.6 trillion in AUM globally, which amounts to 27% of the group’s total assets.

Fidelity Investments

Fidelity Management & Research Company was founded in 1946 by Edward C. Johnson II. As of October 2020, Fidelity had 24 million customers with $6.9 trillion in combined assets. The firm offers 386 mutual funds, including domestic equity, foreign equity, sector-specific, fixed-income, index, money market, and asset allocation funds.

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Invesco Ltd.

Invesco Ltd. (IVZ) has been offering investment management services since the 1940s. In August of 2020, the firm announced that it had $987.8 billion in AUM, across its 100-plus mutual fund products. The firm offers over 100 ETFs through its Invesco Capital Management LLC division. In 2020, the company saw some decline in AUM. But despite the resulting dip in its stock price, Invesco remains one of the world’s top asset management firms.

10 Simple Ways to Manage Your Money Better

Being good with money is about more than just making ends meet. Don’t worry that you’re not a math whiz; great math skills aren’t really necessary – you just need to know basic addition and subtraction.

Life is much easier when you have good financial skills. How you spend your money impacts your credit score and the amount of debt you end up carrying. If you’re struggling with money management, for example, you’re living paycheck to paycheck despite making more than enough money, here are some tips to improve your financial habits.

When you’re faced with a spending decision, especially a large purchase decision, don’t just assume you can afford something. Confirm that you can actually afford it and that you haven’t already committed those funds to another expense.

That means using your budget and the balance in your checking and savings accounts to decide whether you can afford a purchase. Remember that just because the money is there doesn’t mean you can make the buy. You have also to consider the bills and expenses you’ll have to pay before your next payday.

Money management

Money management is the process of knowing where you are spending your money today and having a well-thought-out plan in place for where you want it to go in the future. This program will cover the core concepts of money management and teach you how to:

  • Set Goals
  • Get Organized
  • Track Spending
  • Build a Budget
  • Save Money

Chapter 1: Set Goals

Taking the time to set goals today allows you to achieve what you want in the future.

Set specific goals
Financial goals should be specific. For example, wanting to save $1,000,000 for retirement by age 60 is a goal, but wanting to be rich is just a wish. Before you start to save, determine exactly what you want, when you want it, and how much it will cost.

There are three basic goal types: short-term (achievable in under a year), mid-term (achievable in one to five years), and long-term (achievable in five-plus years). If you have multiple goals, you may choose to work toward them all at once or concentrate on one and then move to the next.

You can use the Financial Goals Chart to list your goals:

For short and mid-term goals, the calculation for how much you need to set aside each month is simple: the cost minus the amount you have saved so far divided by the number of months you have to save.

Example: The laptop computer you want is $800, and you would like it in six months. You have not saved anything yet. To reach this goal, you will need to set aside $133 per month ($800/6 = $133).

Long-term goals are a little more complicated because you can deposit your savings into an investment vehicle and earn interest, which will help you achieve your final savings goal. (You can do this for short and mid-term goals too, but the interest earned is usually minimal.) However, whatever you are saving for will also likely cost more in the future because of inflation (the gradual rise in the cost of goods and services over time). You can use the financial calculator below to figure out how much you should set aside each month for long-term goals. (Use your best guess as to how much you will need to save and what your return will be.)

Example: Your goal is to save $10,000 in ten years for your child’s higher education. If the annual rate of return (interest) averages five percent, you will need to set aside $64.40 each month.

Be flexible
Creating a budget (discussed in Chapter 4) will help you determine how much you can afford to save each month for your goals. If you simply can’t manage to put away the amount you thought you could, don’t give up. Consider if you can extend the goal achievement date or set a similar goal that is cheaper. Perhaps a $5,000 Caribbean cruise is not doable, but you can save $2,000 for a vacation in Florida.

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