What is a managed account?
The term ‘managed’ means that somebody else is managing your accounts. It essentially bundles together a group of funds for an individual investment portfolio. The accounts’ ownership remains with the individual investor but is managed by a professional money managing firm, software or individual. The manager does all buying, selling, and reinvestments on your behalf. The assets are ruled and owned by the investor here. You can direct your manager to trade as desired. You alone are authorized to withdraw and invest capital.
Discharging of fiduciary duty is the hallmark of a managed account. Your manager is duty-bound to act in your best interest, failing which criminal penalties may be levied upon him. However, all managers do warn about a partial or complete loss of funds due to the market’s volatility.
Managers, by and large, are independent of the investors unless instructed. It means that all buying, holding, and selling will be the manager’s or the trading system prerogative unless instructed otherwise. As an investor, you can be informed on trading signals and strategies to trade on your behalf to attain predefined objectives and goals.
Fees and minimums
As compared to the self-investment module where there is no minimum deposit concept, money managers typically ask for a minimum dollar sum to start with. This can vary widely between $10,000 to up to $500,000 in some cases. The managers are compensated by way of annual fees ranging between 1% to 2% of the assets under management (AUM). In addition to the above, managers also ask for a minimum period to stay invested. Automated forex managed accounts usually start with lower requirements.
Types of investment accounts possible:
Before you rollover into investing in forex via the managed forex accounts channel, it is advisable to familiarize yourself with the different types of accounts investors use in order to gain an advantage. They are:
Forex managed aссount
Forex managed accounts usually are the most affordable and the most tricky type of managed accounts. The investor lets a professional or the automated trading software operate his forex account. The pitfall here is to check the system’s or the account manager’s professionalism and track record. Use credible sources like myfxbook or fx blue. You can find track record, transparent order, and trade execution, there as well as verified managers. It would be easier to decide whether to trust your money to their skill. Investors can also consider an automated trading robot, also called Expert Advisor, to minimize human error possibility.
Portfolio of stocks
It is also called ‘separately managed accounts’ or SMAs. SMAs are asset management firms managing individual securities. The targets for SMAs are wealthy individuals (not super-wealthy, though). As compared to mutual funds, SMAs will offer you more customization towards managing style and investment approach.
Portfolio of mutual funds
Also known as ‘wrap accounts.’ These are portfolios designed in such a way so that it includes several mutual funds providing broad diversification of assets and geography to deliver the promise of steady performance. It aims to accommodate varied investing styles vis-à-vis income, growth, index, and balanced styles and pre-packs a portfolio of mutual funds into one. You, as a client, can also rebalance segments based on a single quarterly report of the various mutual funds you own.
The diverse portfolio of funds
You should always aim to have a ‘balanced’ portfolio. A good option is to diversify by adding bonds and equities. It helps in hedging from heavy losses in any one vertical.
Assets, cash, and property titles
As an investor, you must not park all your funds in one class. Diversify funds by investing in assets (like forex, equity, bonds, etc.), having liquid cash availability, and maintaining property titles, which show tangible and intangible ownerships of individuals and businesses.
The 401(k) account is a retirement plan which is offered by an employer as part of employee benefit. Here, you can choose to contribute a portion of your wages – subject to yearly limitations – and your employer may choose to match a portion of your contribution. You may use your 401(k) funds to invest in your choice’s mutual funds.
Individual retirement account
IRA is a tax-free retirement savings account offered by various financial institutions. You can use a broker or a bank and open an IRA account with them. You can choose stocks, bonds, and other assets as your investment destination. The growth and loss of funds in the account depend on how you invest. Bonds and stocks can be sensible choices for long-term goals like retirement.
Advice vis-à-vis account manager
Choosing the right money managing firm is very important. You should always check past performances. Firms that offer their investors a high level of diversification across multiple asset classes and have robust principles guiding their investment approach, possibly, will park your funds more efficiently. You can build confidence with your AM by discussing your goals, risk tolerance, investment horizon, and investment strategy choice. It helps your manager to open an account and create a portfolio matching your needs. However, based on monthly or quarterly reports, there is always an option to rebalance in the long term.
If you have the dollars to spare, then parking your investments via a trusted account manager is relatively worth considering if you want to insulate yourself from the mental and emotional stress associated with self-trading. Even though both managed funds and mutual funds have professional managers, there are some benefits of managed accounts over mutual funds. While managed accounts cater to specific customer needs, mutual funds invest according to fund’s strategy. With timed trades, tax liabilities can be minimized with managed accounts, whereas investors cannot control taxes on released capital gains of mutual funds. Also, there is maximum transparency and asset control with ownership in managed accounts. In mutual funds, the investor owns just a share of the asset value of the fund.
However, there are some cons of managed accounts as well. While managed accounts attract high investments, mutual funds can be started with low amount of funds. Only forex managed accounts can overcome mutual funds on this point.
If you are a high-net-worth individual and at the same time very busy and not inclined towards self-trading, then considering a managed account for investments may be an option worth exploring.