Here’s What to Look for in an investment Manager
Following is a guest post from Gabby Revel – Founder, writer, editor & administrator at Fertile Content.
Trying to manage your own investments can be stressful and more than a little frightening. And that’s not even including all the time-consuming, hard work that’s involved in managing it successfully. For this reason, many select a professional investment manager to deal with the task for them. This arrangement can take the form of mutual fund investments or it can find your investments holed up in a separately managed portfolio.
Choosing an investment manager
Regardless of what form your investments take, choosing the right investment manager to handle them for you can be challenging, confusing and even risky. It can seem almost as risky as picking your own investments.
Active or indexing?
This may sound confusing but it really isn’t. Do a little homework, read investing articles and study stock market trends for a bit. Once armed with some information, you’re ready to get started. Your first step is to decide if you want an investment manager who is active—meaning he/she has wide discretion for choosing your investments. Or do you want an investment portfolio that is closely reflective of a specific index, like the S&P 500.
Indexing can reduce the number of potential mistakes an investment manager may make (they are human, after all), and the cost here tends to be cheaper. On the down side, there are so many indices representing so many segments of the market that it can be hard to hit on the best mix of market segments to fill out a complete portfolio.
If broadly delegating the responsibility for investment is more your style, then an active manager with wide discretionary capabilities may be more to your liking.
So you have to first decide, active or indexing? To help you with this decision, we’ve put together a few tips on how to choose an investment manager.
Check the fees
Remember that you’ll get what you pay for. When you’re considering active managers, you’re not looking for the bargain basement. On the other hand, you don’t want a manager whose fees will cut a huge chunk out of your investment returns. Fees should generally be no more than 1 percent on equity funds and less than that for bonds.
Look at full market cycles
Base your decision for an investment manager on their track record across a full market cycle. Don’t just pick a random three- or five-year period. The market could have been dominated by bulls or bears during the time you choose.
Consider your assets
When you’re checking a product’s performance during a market cycle, check for the amount of money under management throughout the entire cycle. Does the track record you’re looking at include the bulk of the money the manager had in play during that period? You’ll need to know this to determine if the performance record is truly representative.
Are there conflicts?
What this basically means is that you should make certain your manager’s interests are in line with yours. If your manager’s salary is contingent upon the growth of your portfolio, you can probably sleep well knowing your adviser has the same goal as you – making money. It is best to avoid a situation where the manager’s interests aren’t aligned with yours.