It’s easy to make money when the market is going straight up, as it did from March 2009 through December 2021 (except for a brief sell-off in the first quarter of 2020).
But the past year has been a volatile one for both stock and bond investors.
Many readers have written to ask me what they should do with their money now.
I share my ideas on that subject in several Oxford Club publications each week.
However, some readers ask for personal advice based on their age, experience and personal circumstances.
As publishers, we can offer only general investment advice, not personal advice. That’s how we avoid the intense regulation of the financial services industry.
But not knowing your asset allocation or whether you’re properly diversified or overleveraged – especially given your unique circumstances – is a fundamental mistake.
And fundamental mistakes are the hardest to bounce back from.
Many of the individuals asking these questions might benefit from an account manager.
Historically, only institutional investors used professional money managers to run their portfolios. Individual investors could access top managers only through mutual funds, unless they had millions to invest.
(And mutual funds have their drawbacks, including high costs, poor tax efficiency and subpar performance.)
In recent years, however, investment minimums – and, just as importantly, costs – have come way down.
Managed accounts are now a viable option for mainstream investors.
Here’s how they work…
When you open a managed account, you sign a limited power of attorney to let an investment professional run your portfolio – or, at least, the portion that you turn over to him or her.
The manager begins by determining your investment goals, time horizon and risk tolerance.
The portfolio of a 30-year-old, for instance, would look very different from the portfolio of an 80-year-old.
Here are the benefits of a professionally managed account:
- Custom asset allocation. Your portfolio will be constructed based on your personal investment goals, not a general strategy like “growth” or “income.”
- Personalization. As noted above, an account manager will take into account your specific circumstances: age, experience, time horizon and risk tolerance, for example.
- Transparency. Unlike with mutual funds, you’ll know what’s in your account. You’ll be able to see exactly what you own.
- Tax management. Your portfolio can be run so that state and federal taxes on dividends, interest and capital gains are minimized or eliminated. (Tax-free bonds, as one example, should almost always be state-specific.)
- Competitive fees. Account managers charge a flat fee rather than full-service commissions.
- Performance. Account managers often have favorable track records.
- Convenience. If you are too busy to give your investments the attention they deserve – or if you are an inexperienced or emotional investor – having a professional run your portfolio may be your best bet.
Who would not benefit from a managed account? Primarily do-it-yourselfers.
If you enjoy the investment process, have the time and patience to implement your investment strategy, and – most importantly – are satisfied with the results, you don’t need to turn your money over to someone else to manage.
On the other hand, there are few hobbies more fraught with danger than horsing around with the money you’ve spent a lifetime accumulating and plan to live on in retirement.
Not long ago, I spoke with Greg Galloway, president of Fund Advisors of America in Orlando, Florida, who runs many managed accounts based on The Oxford Club’s asset allocation and investment recommendations.
He said with a laugh…
Look, I’ll be the first to concede that managed accounts aren’t for everybody. However, I speak with a lot of investors who realize they could be doing a lot better than they are. They know they should asset allocate their portfolios, but they don’t. Or they aren’t sure how. They don’t want to be over- or under-diversified, but we look at their portfolios and see that they are. They know they should run trailing stops behind their stocks, but they get distracted or forget. Many of these people are smart, sophisticated investors, incidentally. They’re just too busy running a company, taking care of their families, traveling, or pursuing other interests to give their portfolios the attention they deserve.
How about investors who say that can save money by doing it themselves?
“That’s sometimes true,” said Greg…
After all, you can trade stocks today for essentially nothing. But, remember, the most important question is ”Am I satisfied with my investment returns net of whatever I’m paying?”
I often ask prospective clients, “If no one else would pay you to manage their money, are you really the best person to manage your own?”
Their honest answer is generally a sheepish “No.”
In my view, whether you need a managed account really boils down to whether you like to grow your own tomatoes.
Stick with me a moment…
Some people are natural gardeners. They want to till the soil, plant the seeds, water them, fertilize them, weed them and, eventually, harvest them.
When they eat those tomatoes, they have the pride and satisfaction of knowing they grew them themselves.
Other folks are too busy or are simply uninterested in growing their own tomatoes. They would rather just stop at the store and pick up a bag.
If you’d like to learn more about managed accounts, here are two good places to start…
Greg Galloway, Rick Pfeifer and Conrad Schwalbe of Fund Advisors run managed accounts through Charles Schwab, using Oxford Club recommendations among other strategies. They also offer a complimentary portfolio review. (Minimum account size is $100,000.) Greg, Rick and Conrad can be reached at 800.438.3040 or 407.667.4729.
If your interest is in gold and other precious metals, you may want to talk to the folks at Asset Strategies International. They focus on currencies, precious metals and offshore accounts. Contact Michael or Rich Checkan at 800.831.0007 or 301.881.8600.
Incidentally, Oxford Club Members are entitled to discounted fees and special services at each of these firms.
We at Liberty Through Wealth are not brokers, dealers or licensed investment advisors.
We mention these individuals for information purposes only and do not receive compensation for any arrangement you may reach with them.
In sum, managed accounts are an excellent choice for some investors. Others prefer to grow their own tomatoes.
The two are not mutually exclusive. Many investors turn their serious money over to a pro and keep a smaller account on the side for trading and speculation.
Either way, it never hurts to know your alternatives.