Imagine that you’re driving down the road. Looking ahead through your car’s windshield, you keep your eyes on the road to avoid traffic hazards and to make sure you don’t make any wrong turns. Occasionally, you glance at the rear view mirror to see what’s behind you. Both views are needed to ensure a safe arrival.
This illustration captures the difference between portfolio monitoring and portfolio management. For advisors who specialize in the ever-changing 403(b) and 457 retirement plan marketplace, and the school district officials and plan participants they serve, knowing the distinction between portfolio monitoring and portfolio management is one of the keys to ensuring investment success for their clients.
Portfolio monitoring tends to take the rearward view, looking at where the client’s portfolio has been in terms of investment performance and results. Portfolio management is always forward-looking.
When you’re driving a car, you look in the rear view mirror from time to time, but you spend most of your time looking out the windshield at the road ahead. Similarly, 403(b) and 457 financial advisors need to focus most of their time and attention on portfolio management.
Portfolio management is the professional management of various securities (e.g., shares, bonds, cash, mutual funds) and assets (e.g., real estate) in order to meet clients’ specified investment goals. Portfolio management embodies the art and science of making decisions about investment mix and policy, matching investments to objectives and balancing risk against performance.
In the long run, portfolio management enables 403(b) and 457 advisors to provide customized investment solutions to clients according to their needs and requirements. The portfolio manager must understand the client’s financial goals and objectives and offer an investment solution tailored just for him or her. That is because no two clients, as any experienced 403(b) and 457 pro knows, have the same financial needs.