Financial Asset Management Choices for Retirees

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.