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Financial Asset Management Choices for Retirees

Posted on August 6, 2008 by bobrichards

Whether you do it yourself or hire an asset manager, your choices of financial asset management are several.

Mutual Funds
The favorite choice of American investors for their financial asset management, mutual funds delegate the day to day decisions to a professional management team.  But the average fund charges about 2% annually (management fees, plus 12b-1 fees plus slippage costs) not including any front or back end loads.  Because the day to day portfolio management decisions are delegated, you only need to select and monitor the fund categories you select.  In recent years, asset allocation has been the buzzword to even make the selection of mutual funds easier with an allocation that looks like this (perhaps 1/6 invested into each category):

  • Large US company stocks
  • Small us company stocks
  • Large foreign company stocks
  • Small foreign company stocks
  • Bond fund—domestic and International
  • REIT (real estate) fund

Complexity (and potentially better performance) can be added by shifting money between the above categories annually by taking money for the categories that have appreciated and adding to the categories that have declined.

Individual Stocks and Bonds
The smaller investor has shunned the purchase and management of individual securities as a financial asset management choice because of lack of knowledge and ability to do the necessary research or lack of time or interest.  Larger investors tend more toward individual securities because on larger portfolios, the 2% fee inherent in many mutual funds gets to be expensive.  The costs to buy or sell stocks at a discount brokerage is insignificant at less than $10 per trade and there is no annual or management fee.  The burden is on the investor or his financial advisor to know what to buy and sell and when to buy and sell.

Managed Accounts
Wall Street created the managed account as a way to offer the best of both worlds (supposedly) as a financial asset management choice.  In this type of financial management account,  you have your own individual account.  Your funds are not commingled with other investors as with a mutual fund.  You appear to have personalization and an individual strategy.  In fact, you have the same portfolio as thousands of other investors (it is really not personalized unless your account is $1 million+) and depending on which type of firm you select, your fees will range from 1% to 20% annually.

There is no 'right' answer to the above financial asset management choice that you make.  In all three situations, commodities are being added to the asset mix as investors realize that rising demand for commodities from China and India presents an attractive appreciation opportunity.

Note that your choice of a solution is secondary to larger strategies issues like your tax planning and retirement income needs which can be ascertained by using a retirement calculator.

How Wealthy People Invest

To get wealthy, invest like the wealthy
  • Why the wealthy steer clear of mutual funds
  • How the rich systematically make money in the market
  • Key metrics that differentiate good and bad investments
  • A comparison of ETFs and separately managed accounts you have never seen
  • Stop making the same investing mistakes as everyone else who listens to CNBC and reads Money Magazine. Do what the rich do! Free guide explains how they think and make investment choices.

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    Filed Under: Managing Your IRA, 401k, or Pension

    About bobrichards

    Bob Richards
    Editor | Involved in Various Marketing Positions within the Financial Services Industry

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