A Managed Account Might Not Be for You

Many investors choose to invest in a managed account instead of a mutual fund. While they are similar in nature, they differ in a few key areas. Depending on your situation, a managed account may not be the best fit for you. Here are a few things to consider about the managed account.

What Is a Managed Account?

A managed account is a type of investment account that is handled by a financial professional. It is similar to a mutual fund, except that you have a financial professional reviewing your account. With a mutual fund, a fund manager will make all the investment decisions for the entire group at once. It is a very generic approach to investing. With a managed account, you get individual attention and you are able to provide your input on individual investment decisions. 

For example, let's say that you are investing in a mutual fund. You decide that you want to eliminate your holdings in a particular company. Unfortunately, you would not be able to do so because the mutual fund manager does not consider your opinions. With a managed account, you can simply call your financial adviser and tell them to sell all of your shares of the particular company.

Investment Minimums

One of the major problems with a managed account is that many of them have investment minimums to contend with. Many of these managed accounts will require that you invest a significant amount of money in order to get started. Most of the time, a financial adviser is not going to want to spend a lot of time with you unless you have a lot of money to invest. Therefore, if you do not have the available funds, this type of investment would not be for you.

Higher Fees

Another drawback to this type of investment account are the higher fees that are associated with these type of accounts. When you invest in a managed account, you will receive quite a bit of individual attention from your financial adviser. Unfortunately, this attention is usually not free. An investment adviser wants to be well compensated for their time. Therefore, you will usually have to pay significantly higher fees for this type of investment, when compared to the mutual fund.

Economies of Scale

When investing in a managed account, you will not be able to take advantage of the economies of scale that come with investing in mutual funds. When you invest in a mutual fund, you will pool your money together with many other people. This presents a very large amount of money for the fund manager to invest. This allows them to diversify the holdings of the portfolio and reduce the overall risk. When you invest only your money, you will not be able to properly diversify your holdings.

In addition, you will not be able to benefit from the lower transaction costs that come with purchasing thousands of shares at a time like a mutual fund would.

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