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Managed Accounts Versus Mutual Funds
By John | September 8, 2010
There are a few major variations in costs and efficiency between mutual funds and managed accounts that may have a meaningful effect on your investment returns.
Mutual funds are pooled funds, meaning all the money that you and thousands of other investors send to the fund company will be put in one large pool of money and the manager will manage this pool. If an investor wants to add new money or pull out some cash, it goes into and comes out of this pool. A managed account on the other hand is a private account, meaning that you’ve got your own separate account which is not commingled with other accounts.
There are three main cost components in a mutual fund:
1) Internal expense ratio-the incidental day-to-day expenses of the fund like the utility bills, rent, salaries, research etc.,
2) Marketing, loads and 12b-1 fees which are incurred in marketing the funds and
3) Transaction costs. These typically add up to varying from 1% to 3% or more annually for any mutual fund, even so-called “no load” funds. A great resource is John Bogle’s definitive bible called Bogle on Mutual Funds.
Typically managed forex funds typically had for 1% to 2% all-in if you’re able to show your broker that you know the ropes. Much less if your accounts go into the 7 figures. With mutual funds, you are stuck with the common expense ratios no matter how much money you invest.
The most important difference to me is the efficiency factor however. If you picture yourself as the manager of a fund, you will be taking a look at valuations and buying when things are cheap, ie. when the markets are down, and selling when things are expensive, ie. when markets are up. Unfortunately, most fund managers are forced to do the exact opposite caused by a phenomenon knows as the Small Investor Effect. The theory-and proven fact-is that the typical investor buys funds when the markets are doing well and sells when they are not. The Fear & Greed effect in action. That would be OK to us except that this activity puts the fund manager in a bind and forces him to sell when the markets are a buy and buy when the markets are a sell, effecting us all as shareholders. Separate or managed accounts were invented partly for this reason and in theory, they avoid this serious drag on performance-as long as we trust the manager to do his thing and not interfere with our own fear and greed impulses.
Most of the time, managed accounts are the way to go if you meet the minimums required, typically $50,000 to $100,000. Many mutual fund managers also have their brand private or managed accounts. There are times however, when a mutual fund is the right choice. A 401k plan or an IRA where you are adding fixed amounts periodically would be a good example because you cannot do that efficiently in a managed account.
Though foreign exchange is an activity that has been performed over many, many years, this activity is relatively new as an online business venture. Despite this newness to individuals, the truth that it has been performed over time and still exists as a way of making money makes this opportunity stand out amongst the list of other work at home activities. With less variables to go wrong than selling items or services, and less risk than dabbling in the stock market, forex trading is a much safer and lucrative endeavor. Additionally, it is a widely known fact that those who use forex managed accounts report higher gains than those who enter this realm alone.
Topics: Investing |
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