Why Portfolio Management

If you have substantial assets invested in the equity markets, it often makes sense to hire a portfolio manager. Here are some of the reasons why investors hire portfolio managers:

Scenario 1: Investors have recently and unexpectedly been put in charge of investments and don’t know what to do

We speak to many investors who have recently inherited, lost their spouse who managed their finances, retired and now have to manage an IRA or 401k. In all of these cases, investors have one thing in common. They are inexperienced when it comes to managing money, and they need to move up the learning curve quickly. These investors need to be invested appropriately virtually overnight and do not want to be stressed with the responsibilities of managing their money day-to-day, but instead would like to focus on enjoying their life.

Scenario 2: Investors “collect” mutual funds and are looking for help

Mutual fund investors often tell us they simply buy funds based on recommendations from their financial institution, or based on Morningstar ratings. They often allocate funds based on random or equal percentages of their portfolio. They are often unaware of any overlap that may exist between funds, as well as the lack of an asset allocation strategy or proper diversification. As a consequence, many of these investors have no road map to get to their investment goals, take disproportionate risk in the process, and are unable to react to changing market situations. Lastly, because they are unaware of overlap, investors may be paying for fees in two funds where one is selling the same securities the other is buying, creating tangible inefficiencies.

Scenario 3: Investors have large amounts of cash they want to invest, but don’t know how

Another kind of investor we often encounter are individuals who have a large amount of their portfolio sitting idly in cash. Some pulled out of the equity markets in 2007, 2008, or 2009, and are trying to figure out when and how to get back into the market to make their money work both harder and smarter for them. Others inherited large amounts of cash and have a long enough time horizon to re-invest the cash into higher yielding investments. Yet others sold their business and are trying to figure out how to invest their lifetime savings so it can support them and their family in retirement and beyond. Whichever the situation, these investors are often inexperienced and hesitant to spend the amount of time and research necessary to invest their nest egg appropriately.

Scenario 4: Investors work with a broker, “collect” stocks, and are looking for better service

A large number of individuals we talk with are displeased with the broker they work with. The broker calls them with stocks to buy and they have consequently collected stocks for some time. As a result, there’s a lack of a plan, and often volatility is high, true diversification non-existent, and performance is lagging.

Scenario 5: Investors manage their own money, but realize they are not enjoying it enough or satisfied with their results

In our experience, many investors who manage their own money, inevitably find they enjoy spending time with their family, playing golf, traveling, exercising or gardening more than managing their money. Simultaneously they often realize they cannot get the kind of performance out of their investments that would make it worthwhile making sacrifices to their quality of life.

Diversification does not insure profit or protect against loss in a declining market.