Why Manage Your Own Money?

A recent 3-part post showed how I open a new account with the objective of a client taking over management within a 12-month period.  The bottom line of the posts was to show that it is easier for people to manage their own assets than they realize and that it takes very little time.  There are other benefits as well.

Often I hear people complain that their advisor doesn't contact them or they aren't sure of their advisor's strategy.  This ratchets up in difficult markets.  They complain they don't get reports on time and aren't sure how to read the reports once they get them.  These concerns can be eliminated by learning to take control of your assets.  Nobody knows your objectives, risk tolerance, and how you react to the ups and downs of the market better than you do.

Managing your own assets is also a way to keep your investment advisor honest.  As many people know, the financial services industry is adept at hiding fees and obfuscating sub-par performance. By managing a portion of your assets, you will automatically have a benchmark with which to assess your advisor's performance.  To be fair, the performance should be over a sufficient period of time - typically at least three years.

This brings to mind my experience early in my career as an advisor to the trustees of the United Mine Workers Health & Retirement Funds - a multiemployer pension fund in Washington D.C.  As an advisor, I and other staff members wrote and delivered reports on some of the top equity and bond managers in the country.  It became evident to the staff that, to be able to fairly evaluate managers and assess whether they were adding value, it would be extremely useful to manage portfolios in-house.

So, imagine going in after 3 years and your advisor claiming they did a good job and saying the account is up 15% and you showing that you achieved a return of 18% using the same asset allocation and low-cost index funds!

There, obviously, is no guarantee on future performance; but considerable data shows that, after fees, active managers underperform market sectors over the long run. Furthermore, considerable data reveals that the low-cost index approach has historically outperformed upwards of 80% of active managers after fees over the long run.

Another significant plus in managing your own assets is, of course, the savings in management fees.  At 1% to 2%/year that the typical manager charges, the fees mount up and take a significant chunk of the typical nest egg.

There is a caveat.  If you are overly emotional, you will want a professional manager.  Still, there are some low-cost alternatives to consider.

Look at www.marketriders.com
or
www.portfoliosolutions.com.

Disclosure:  This post is for educational purposes.  Investors should do their own research and/or consult an investment professional before making investment decisions.