Dear Mike: My adviser recently mentioned that I might prefer to be in "managed money." What exactly is that, and how do I know if it's right for me?
Jason in Victoria
The investment world can be complex, so you may not want to navigate it alone.
But when it comes to getting professional advice, you certainly have an abundance of choices. How can you know which approach is right for you?
The answer depends, to a large extent, on how you choose to work with a qualified financial adviser - someone with the training and experience to help you work toward your financial goals.
When you work with a financial adviser, he or she will analyze your financial situation - your income, current assets, family status and short-and long-term investment goals, such as helping pay for your children's (or grandchildren's) college education and attaining a comfortable retirement.
You can choose different ways of working with a financial adviser - and a deciding factor may be how "hands-on" you want to be with your investment strategy.
To illustrate this concept, let's look at two common ways investors interact with financial advisers:
- Taking recommendations and making choices: After evaluating your financial situation, goals, risk tolerance and time horizon, your adviser can recommend appropriate investments. Over time, your adviser will communicate with you regularly to keep track of changes in your life and to suggest any changes you may need to make in your portfolio. Of course, you have the final say in accepting or rejecting these recommendations, which is why this method is considered a hands-on way to invest.
- Investing through a managed account: In this situation, your adviser will help you create, implement and refine your long-term financial strategy, but the money managers will make the daily investment decisions, relying on a variety of criteria pertaining to your situation. For example, if your portfolio became over weighted in a specific asset class, such as stocks or bonds, and is no longer aligned with your goals, it may automatically be brought back into balance.
So which method of investing is better for you?
There's really no one right answer for everyone. If you are the sort of person who likes to make all your own decisions, then you might be better off following the hands-on approach with your adviser. On the other hand, if you are particularly busy and just don't feel you have the time to be actively involved with day-to-day investment decisions, you might want to consider a managed account.
In any case, you will want to be comfortable with the method of investing that you have chosen. So do your homework beforehand. Whether you are interested in a hands-on relationship or a hands-off approach, you still need to interview several financial advisers to find one who has worked with people in your situation and who seems genuinely interested in helping you.
During these interviews, make sure you understand everything related to working with a financial adviser - the fees involved, the way decisions will be communicated to you if you choose a managed account, and so on.
Deciding how you want to invest is your first step in working toward your financial goals, so make the choice that's right for you.
Mike Watkins, CFP, FMA, FCSI, CSWP
Watkins is a financial adviser with Edward Jones and author of the financial planning guide It's Only Money. To ask a question, call (250) 418-0114 or email@example.com