Your Investment Options
When it comes to portfolio management, there are 2 choices. You can educate yourself, or you can delegate that responsibility and have experts do it on your behalf. If you enjoy the research involved in becoming a successful trader, an ETF portfolio can be a lot of fun and possibly profitable. Many investors, especially first timers prefer to go this route as they familiarize themselves with the markets. If you delegate to a separately managed Account (SMA) manager however, you don’t necessarily have less risk, but you have hired a firm with a professional infrastructure and in-depth market research capabilities.
What Is An Exchange Traded Fund?
An exchange traded fund (ETF) is a type of security made up of smaller financial assets like stocks. In this sense, ETFs are similar to mutual funds, but the main difference is that ETFs can only be bought and sold while the stock market is open during the typical work day. An ETF divides ownership into shares which is then distributed to shareholders. Shareholders indirectly own the asset and are entitled to shares of the overall profit of the security which is referred to as dividends or interest. ETFs have low cost and are easily traded making it a great place to start for beginners.
What Is A Separately Managed Account?
There are many different types of SMA investment accounts. These types of accounts are typically offered through a firm’s broker and managed by an independent money manager. Compared to owning fractional shares in an ETF, an SMA allows you to own the whole security, giving you more control over the asset with potential for larger profits. SMA accounts are run by managers who look to achieve specific objectives like growth and income. SMA accounts can be built for tax planning, aggressive growth, global investing or even thematic investing. Generally SMAs require a substantial amount of capital to open an account which can be difficult for new investors.
Which Investment Strategy Is Best For You?
If you are someone who wants more control over your finances, investing in ETFs might be the way to go. The downside to this approach, however is that this requires a lot of time and energy to learn and understand the markets. This can lead to costly mistakes, but in return, you don’t have to pay any management fees. For many investors, it’s the thrill of scoring big profits that excites them most, however the cost of making uninformed investment decisions can end up costing you much more than most management fees.
Are you caught up in your career but find yourself wanting to dive into the vast world of investing? This isn’t uncommon. Most working professionals simply don’t have enough time to devote to research, in this case, opening a SMA is your best option. In this scenario, it may benefit you more to delegate this responsibility to a professional so can dedicate your valuable free time on things you actually enjoy. The money you spend on management fees not only pays for a professional to safeguard and grow your portfolio, it also buys you FREE time. For most people, that is the real fun.
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