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What are Managed Accounts?

Sep 24, 2019 4 min read Ira Hellman

Key Takeaways

  • Managed accounts can help take the guesswork out of investing.
  • Portfolios can match your personal risk profile and goals.
  • Some high-tech services add a human touch.

 

When you get down to it there are generally three types of investors:

  1. Those with the time, knowledge and desire to research, choose and manage investments on their own.
  2. Those with the means to retain a personal money manager.
  3. And everyone else.

For that third group, managed accounts could mean the difference between an effective approach to your financial goals and…not.

 

What is a managed account?

Broadly speaking, “managed account” refers to a wide range of investment portfolios with two things in common: a diversified mix of stock, bond and other investments designed to match the investor’s “time horizon” (how long until they’ll need their money) and “risk tolerance” (how well they can stomach the market’s ups and downs), and a fee for the service — usually a percentage of the account’s value.

 

 

Managed accounts have been around for generations, but technology has created investing solutions with mass e-ppeal.

These days the accounts are overseen by everything from traditional flesh-and-blood advisors to online programs that let you point and click your way to a portfolio. “Hybrid” services offer management in the middle, combining computers’ number-crunching prowess with humans’ experience, expertise and — something no “robo advisor” has mastered — empathy.  
 

How do managed accounts work?

Before you open a managed account, you answer basic questions about your personal status, financial goals, investment knowledge, ability to invest and attitude toward risk. Your answers are analyzed to determine a suitable mix of investments for you and your goal.

The result is a proposed, diversified portfolio — usually a range of low-cost mutual funds or exchange-traded funds (ETFs) — for you to review. You might receive different proposals for different goals. If you like what you see, you can move ahead to open and fund the account.

 

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Set it…but don’t forget it

Once you open your account, your money is allocated, or divided, based on the portfolio you approved: Different percentages go to different kinds of stock, bond and other investments, across the U.S. and maybe the rest of the world. Typically, the longer your time horizon and higher your risk tolerance, the more your portfolio will focus on stocks, which historically have outperformed other types of investments over long periods, but with greater short-term risk of loss. (Just remember: With investing, the past is not prologue — neither historical performance nor asset allocation guarantees a profit or protects against loss.)

Also, different kinds of investments tend to perform differently under different conditions. That’s not necessarily a bad thing; for example, it could mean a bull market in stocks has supercharged your portfolio’s overall value. But over time, it could throw your intended investment mix — and the risks you’d planned to take — out of whack.

That’s why a managed account periodically buys and sells investments to rebalance your portfolio and get it back to your target allocation. Even so, stuff happens — in the markets and your life — so it’s a good idea to check your account every year or so to make sure it still meets your needs.

 

What you can do next

If you’re not a devoted DIY investor or someone sitting on a mountain of wealth, you may want to consider a managed account Opens in new window. For a set fee, a licensed money manager will match you with a diversified, typically low-cost investment portfolio pegged to your personal goals and risk profile, and rebalance your account periodically to keep you on track. And while the modern version of these services use “robo advisors” to do the dirty work, you can also go with a “hybrid” for heavy lifting with a human touch.

And remember: Investing involves risk. You can lose money. Got it?

 

Ira Hellman is a Prudential writer and editor whose personal finance work has appeared in a wide range of media, including Money magazine, CBS Radio, Schwab.com and GEICO More. To the best of his knowledge, Ira was not named after a retirement account.

 

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