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Asset Management
Although the term sounds very corporate, like something only Fortune 500 companies do, asset management is something that individuals do all the time, often without knowing it. Whenever homeowners take home-based lines of credit to pay off consumer loans with higher interest rates, they are “managing assets” intelligently to get the best results for their particular situations.
Asset management is one activity among numerous others that, taken together, make up comprehensive financial plan, whether individual or corporate. These comprehensive plans involve everything from insurance to investments, retirement investments, and income to expenses, and all of the constituent parts interact with some or all of the others in a veritable symphony of activity. However, each component has its own role and rationale, and asset management is one of the most important.
The Wall Street version
When Company A takes over Company B, one of the first news stories that follows will concern the “un- and under-utilized” assets of the latter firm. Company B, it often turns out, fell on hard times because of poor asset management. The executives of Company A will take a hard look at everything that Company B owns (its assets) to determine the best course of action, on a case-by-case basis, for each asset – sell it, keep it, merge it, whatever the case may be.
Corporate takeovers are nothing new, but since the advent of the Internet and a growing sophistication (in some quarters) vis-à-vis financial markets, more and more people are learning to emulate corporate financial practices in their personal lives. This includes such classic asset management considerations as Return On Investment (ROI) and depreciation.
The Main Street version
For family finances, these same questions and considerations will help focus one’s thinking and illuminate the advantages of good asset management. For example, “Internet banks” – whether newly formed, divisions of other financial firms or simply Web-enabled extra “doors” to Wells Fargo or Bank of America – are now offering passbook savings rates 5 to 7 times greater than at a brick-and-mortar location. With a high enough balance, transferring the account could earn hundreds, even thousands, of dollars in extra interest.
That still-decent but unneeded third car in the driveway is costing money even sitting there, what with registration, basic upkeep and so forth. Selling it, even donating it, is a wiser asset management choice that letting it decay until you have to pay for it to be towed. In fact, those neighbors who have a yearly garage sale are practicing a very simple, straightforward style of asset management by turning so-called “junk” into cash, which can then begin earning interest.
Planning vs. doing
Asset management is an ongoing process. You should discipline yourself to review your assets, along with the rest of your financial plan, on a regular basis. Whether this ends up being weekly or monthly will depend on a variety of factors, but the main thing to remember is to do it, not just plan to do it.
Once you have developed good financial habits, both planning and doing, you will begin to understand finances in a whole new way. You will see the big picture and realize the interconnectedness of your assets, liabilities, income, expenses, insurance and everything else. Along with these other important topics and activities, asset management will eventually be second nature to you. There is nothing magical, mystical, mysterious or incomprehensible about it, and once you become experienced with it you will never look at finances, yours or anyone else’s, the same way again.
Topics: Investing |
