Got another live reader on the line w/ some questions and advice needing:) I’m gonna post our convo down below, but if you have anything you’d like to share or ask, def. do so in the comments! These Q&As help everyone here, so the more discussion we get going the better… (Yay for blogging!)
This comes from our friend we’ll call “Southern Sweetness”:
Got something that’s been weighing on me for a while…. managed vs. unmanaged accounts. And when I say managed I mean professionally managed, not self-managed. At the moment I have my investment accounts managed for me by investment advisors that I am super comfortable with… they are awesome. Not only because they’ve gotten me a great return for 2012, but because I feel like I can talk to them about anything and that’s really what is important to me as a young investor.
I clearly don’t have the training to be managing my own accounts right now, and even when I do get my Master’s degree I probably won’t specialize in finance… cause that’s not where my heart is (it’s more in sustainable business/social entrepreneurship).
I recognize that paying money managers digs into my profits, but right now that is worth it to me. However, I’d like to ideally one day control my own investments – but at the same time, that thought kind of scares me. It’s still a ways away (like not this year or maybe not even next year) but I feel like it’s been drilled into me that lowering management costs is one of the top ways to increase your return.
Well, that makes sense, but at the same time… do I truly know enough to be managing my investments? Will I know enough even if I researched and studied for the next 2+ years? My expertise might lie more in real estate (which I have a little experience in, and am getting my license) rather than stocks and funds. I know more about them than probably most people my age, but still – is that enough? I’m not sure.
Would love your insight on this! Thank you!!!
Well this is an easy email for me to answer :) And that’s to STICK WITH WHAT YOU’RE DOING!
Every reason you listed is soooo perfect for sticking with the setup and people you currently have working on your behalf. In fact, I’m actually jealous of it! haha… I’d LOVE to have someone I know and trust killing it for me :) There’s now way I’d be able to put in the same amount of time as they do, nor do I want to.
Yes it’s good to learn and research and see if you can come up with the same (or better) returns as they can, but really in the end is it all that worth it? Could you use those hours towards better things like your sustainable business/social entrepreneurship stuff? (Which I absolutely LOVE btw – there’s a great course at Georgetown here that centers around this and I got to help out once w/ it!) And realistically what are the odds you can do better than them anyways? Even to make up for those management fees?
I’m not saying investment managers always beat out us common folk – I bet we can give them a run for their money just by knowing a little bit – BUT in the long run I think it’s best to leave it to those who live and breathe for this kinda stuff. At least early on while we’re working on other important things in our lives.
Have you ever heard that saying to “always hire those who are smarter than you?” when building companies? I liken it to that :) I want an accountant and a manager and everyone else who knows way more than I do so I can work on the stuff that truly matters to me. Even if it costs me a few more pennies. Which would you rather have more of: Time or money?
Now all that being said, there’s nothing wrong at ALL with:
- Learning and researching more to make yourself feel more comfortable with everything
- Siphoning a portion of your money out to try managing yourself and seeing what happens
This is a nice way of not only decreasing your risk, but also proving if it’s something you *really* should be doing or not. If you fail at it or even succeed but hate it the entire time, just throw it back into your other mix and move on! And if you get addicted AND are getting higher returns than the other guy over time (you’d have to run the test for a while to really gauge everything), then you can pull out all your money from there and get crackin’ with your new sexy skills.
I’m currently doing something similar with all my IRA money that used to be in my 401(k) accounts. I couldn’t decide which route to go myself, so I divided the pot into 3 different accounts at USAA and have been tracking it for over a year and a half now :) I’m still not sure which route to go, but at least now we have some data to play with…
In the end though it really comes down to what’s important to you at any given time in life, and how much time and effort you find it’s worth pouring your heart into. When the weights start tipping, go ahead and implement the respective changes!
Either way, you’ll be fine :) You’re much more smarter than the average college student out there.
PS: I forgot to mention another route you could go is with index funds too – a lot of people love Vanguard and those types of places and the fees are low there too. But this is a much more conservative route than you may prefer doing – just cuz it follows the stock market in general and not hand-picked stocks that your guy may be doing… Still something to consider down the road.
Maybe use some of your side money for your own ideas, and then some for an index fund and compare both of those with the one your guy is doing? That would give you 3 variables to test!
Here’s what she responded back with a bit later on:
That is great – thank you SO much. I am relieved, to say the least. I don’t really think in black and white with anything other than money, it seems. It totally makes sense to play around with some funds right now in a completely separate account just to see what happens. I’ve just heard so much about how evil money managers are so it got me worried, haha… maybe I should just take all that stuff with a grain of salt.
And I know brokers and people like that can be shady, but I’m with a pretty reputable investment management firm – and when I asked about how they were individually compensated, my managers said the fees are 1% of my portfolio. So, I would think that minimizes conflict of interest… if my portfolio goes up in value, they get a larger chunk. Not like brokers who make money on every trade. Am I correct in thinking this? (Answer: Yup! At least from the sounds of it.)
I definitely don’t have the time over the next few years to devote to this. I read stuff here and there but definitely not to the level that they have been educated. I guess I am just impatient too – haha.
And yeah, when thinking about taking control of it, I was going to stick it in index funds anyway. I’m definitely curious now though, so I just might implement all 3 options :-)
A happy ending! What are your thoughts on this? How would you/do you handle this stuff?
[Photo by PeterJBellis]
Jay loves talking about money, collecting coins, blasting hip-hop, and hanging out with his three beautiful boys. You can check out all of his online projects at jmoney.biz. Thanks for reading the blog!