“Do I truly know enough to be managing my investments?”

Got another live reader on the line w/ some questions and advice needing:) I’m gonna post our convo down below, but if you have anything you’d like to share or ask, def. do so in the comments! These Q&As help everyone here, so the more discussion we get going the better… (Yay for blogging!)

This comes from our friend we’ll call “Southern Sweetness”:

Hi J,

Got something that’s been weighing on me for a while…. managed vs. unmanaged accounts. And when I say managed I mean professionally managed, not self-managed. At the moment I have my investment accounts managed for me by investment advisors that I am super comfortable with… they are awesome. Not only because they’ve gotten me a great return for 2012, but because I feel like I can talk to them about anything and that’s really what is important to me as a young investor.

I clearly don’t have the training to be managing my own accounts right now, and even when I do get my Master’s degree I probably won’t specialize in finance… cause that’s not where my heart is (it’s more in sustainable business/social entrepreneurship).

I recognize that paying money managers digs into my profits, but right now that is worth it to me. However, I’d like to ideally one day control my own investments – but at the same time, that thought kind of scares me. It’s still a ways away (like not this year or maybe not even next year) but I feel like it’s been drilled into me that lowering management costs is one of the top ways to increase your return.

Well, that makes sense, but at the same time… do I truly know enough to be managing my investments? Will I know enough even if I researched and studied for the next 2+ years? My expertise might lie more in real estate (which I have a little experience in, and am getting my license) rather than stocks and funds. I know more about them than probably most people my age, but still – is that enough? I’m not sure.

Would love your insight on this! Thank you!!!

Well this is an easy email for me to answer :) And that’s to STICK WITH WHAT YOU’RE DOING!

Every reason you listed is soooo perfect for sticking with the setup and people you currently have working on your behalf. In fact, I’m actually jealous of it! haha… I’d LOVE to have someone I know and trust killing it for me :) There’s now way I’d be able to put in the same amount of time as they do, nor do I want to.

Yes it’s good to learn and research and see if you can come up with the same (or better) returns as they can, but really in the end is it all that worth it? Could you use those hours towards better things like your sustainable business/social entrepreneurship stuff? (Which I absolutely LOVE btw – there’s a great course at Georgetown here that centers around this and I got to help out once w/ it!) And realistically what are the odds you can do better than them anyways? Even to make up for those management fees?

I’m not saying investment managers always beat out us common folk – I bet we can give them a run for their money just by knowing a little bit – BUT in the long run I think it’s best to leave it to those who live and breathe for this kinda stuff. At least early on while we’re working on other important things in our lives.

Have you ever heard that saying to “always hire those who are smarter than you?” when building companies? I liken it to that :) I want an accountant and a manager and everyone else who knows way more than I do so I can work on the stuff that truly matters to me. Even if it costs me a few more pennies. Which would you rather have more of: Time or money?

Now all that being said, there’s nothing wrong at ALL with:

  1. Learning and researching more to make yourself feel more comfortable with everything
  2. Siphoning a portion of your money out to try managing yourself and seeing what happens

This is a nice way of not only decreasing your risk, but also proving if it’s something you *really* should be doing or not. If you fail at it or even succeed but hate it the entire time, just throw it back into your other mix and move on! And if you get addicted AND are getting higher returns than the other guy over time (you’d have to run the test for a while to really gauge everything), then you can pull out all your money from there and get crackin’ with your new sexy skills.

I’m currently doing something similar with all my IRA money that used to be in my 401(k) accounts. I couldn’t decide which route to go myself, so I divided the pot into 3 different accounts at USAA and have been tracking it for over a year and a half now :) I’m still not sure which route to go, but at least now we have some data to play with…

In the end though it really comes down to what’s important to you at any given time in life, and how much time and effort you find it’s worth pouring your heart into. When the weights start tipping, go ahead and implement the respective changes!

Either way, you’ll be fine :) You’re much more smarter than the average college student out there.

PS: I forgot to mention another route you could go is with index funds too – a lot of people love Vanguard and those types of places and the fees are low there too. But this is a much more conservative route than you may prefer doing – just cuz it follows the stock market in general and not hand-picked stocks that your guy may be doing… Still something to consider down the road.

Maybe use some of your side money for your own ideas, and then some for an index fund and compare both of those with the one your guy is doing? That would give you 3 variables to test!

Here’s what she responded back with a bit later on:


That is great – thank you SO much. I am relieved, to say the least. I don’t really think in black and white with anything other than money, it seems. It totally makes sense to play around with some funds right now in a completely separate account just to see what happens. I’ve just heard so much about how evil money managers are so it got me worried, haha… maybe I should just take all that stuff with a grain of salt.

And I know brokers and people like that can be shady, but I’m with a pretty reputable investment management firm – and when I asked about how they were individually compensated, my managers said the fees are 1% of my portfolio. So, I would think that minimizes conflict of interest… if my portfolio goes up in value, they get a larger chunk. Not like brokers who make money on every trade. Am I correct in thinking this? (Answer: Yup! At least from the sounds of it.)

I definitely don’t have the time over the next few years to devote to this. I read stuff here and there but definitely not to the level that they have been educated. I guess I am just impatient too – haha.

And yeah, when thinking about taking control of it, I was going to stick it in index funds anyway. I’m definitely curious now though, so I just might implement all 3 options :-)

A happy ending! What are your thoughts on this? How would you/do you handle this stuff?

[Photo by PeterJBellis]

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  1. Mrs. Pop @ Planting Our Pennies February 6, 2013 at 6:17 AM

    Food for thought… An article where a cat beats a group of investment managers in a year long stock picking challenge. =)

    We feel like we can’t time the market, so we’re Vanguard fund of funds (Target date is comprised of their ETFs) in all of our IRAs, but are limited to other funds in our 401Ks. And quite frankly, they haven’t been as good. Fidelity’s Target date funds got called out in the NYT the other day for underperforming and they were blaming the active management style.

    1. J. Money February 6, 2013 at 8:58 AM

      hahhaa… I love the first comment after that article: “And just like that fund managers are off to get their own cat.” :)

    2. Brian February 6, 2013 at 11:30 AM

      Well, I was going to get a dog but this may change my mind.

    3. Brian February 6, 2013 at 11:33 AM

      I’m always wary of Investment Advisors. To this day, I’ve never met one that wasn’t shady or just making poor moves in my friend’s portfolio’s. I know Vanguard is a super SUPER conservative way to go but I mean, how much better than the S&P 500 did “Southern Sweetness'” portfolio do? Did it do enough to make up for the 1% management fee?

      Honestly, while I don’t doubt that it might have, I’m just not sure it’s still the BEST option.

    4. My Financial Independence Journey February 6, 2013 at 8:45 PM

      Do not underestimate the intelligence of cats. I have a very smart cat and I’m quite certain that he would be a great investor, if he were only motivated.

    5. Christopher @ This That and the MBA February 7, 2013 at 12:33 AM

      hahaha! your blog was great! it sounds funny but you can truly get a lot of ideas from this article.

      1. J. Money February 8, 2013 at 7:42 PM

        At the very least we gave cats a better name ;)

  2. Lance @ Money Life and More February 6, 2013 at 7:15 AM

    1% isn’t horrible and I’m glad they’re not getting paid on commissions or anything. It sounds like a decent setup if you really don’t want to deal with it yourself.

    That said, you should still know what you’re invested in and understand the risks etc. NO ONE will care about your money as much as you do.

    I suggest running the numbers with one return then that same return minus 1% and see how much less you’ll have when you retire/reach your goal. That should be able to tell you if it is worth it to you to learn how to do it yourself or not.

  3. Brian February 6, 2013 at 8:45 AM

    Do whatever you feel comfortable with. 1% doesn’t sound like a lot, but if they are investing you in mutual funds, the funds are also taking a percentage of your money aswell (which could be small if they are index funds or larger). So that 1% could easily be 2-5% if you aren’t paying attention.

    Also don’t use a “great” 2012 as an example. I had a vanguard S&P index fund and it was up 16.75% last year and only cost me .05%. Basically if you didn’t make money last year you had some bad luck.

    My point it, find out what they are investing you in, find out all the fees and then see if you are happy. If you are, great! Stay the course, but I find I can do better on my own for less fees.

    1. J. Money February 6, 2013 at 9:00 AM

      Or maybe even go and invest in the same funds yourself without them? Though of course they’re always tweaking and rebalancing/etc… and it would be kinda jacked up to just steal their advice and not pay them ;) So my idea is stupid, nevermind, haha…

  4. Paul February 6, 2013 at 8:49 AM

    Many years ago when I was in my 20’s, I set up a couple IRAs and even invested more on my own, using my own research. Then I became busy and didn’t do any investing at all for quite awhile. I was in the military and at some point, the Thrift Savings Plan (TSP) became available to military folks. It has been available to government civilians for much longer. Anyhow, when it became available, I invested some of my pay. There weren’t many investment choices, but I did OK. More recently I have been a Dave Ramsey convert. When I get to Baby Step 4 (investing 15% of income), I will set aside a small amount to invest on my own. My company matches my 5% investment with 10%! (What a great company!) I’ll invest most of the rest in Roth IRAs for me and my wife, and probably put some of the rest in my 403b. The remainder will be invested by me, using my own research. BTW, I do intend to hire a professional to handle the Roth IRAs. I think J’s advice is good, i.e. keep doing what you’re doing, and to take a small amount and invest it on your own.


  5. J. Money February 6, 2013 at 9:03 AM

    What a great company indeed – wow! That’s a TON of free money ripe for the picking right there, way to take advantage of it :) And I still bet there are people at your company who don’t even grab that deal either cuz they don’t want to “lose money” or they’re not paying attention. Always blows my mind.

  6. Jose February 6, 2013 at 9:15 AM

    Personally I manage all of my own accounts. I’ve met some professional money managers that I would trust and many more that in my opinion didn’t have a clue. Some of my investments are mutual funds. I guess you could consider funds to be managed by a professional manager but I think that is a bit different than paying an individual to do you investing for you. Ultimately deciding on whether to use a personal money manager is an individual decision that should be guided by your knowledge of the markets and hust as important, how much time you’ll be able to put into managing your own funds.

  7. Cherron February 6, 2013 at 9:30 AM

    I get really paralized by selling / buying funds and bonds, so like the original poster, I have MOST of my $ under the watch of professionals, in return I pay them .85% annual fee. Does it suck seeing the fees at the end of the year? Yes, but since I’m so scared to pull the trigger on moving money around so I’m happy to have someone do it for me. Peace of mind.

    I’ve managed my own funds in the past and picked some losers out from Kiplinger’s magazine. That was before I knew about indexing.

    I do ALSO have a seperate account where I can make my own choices. So for fun I’ll buy some EFTs but I think for everyone YMMV!

    1. J. Money February 6, 2013 at 10:28 AM

      I have that same paralyzing thing too – so def. good when you have someone doing it for you rather than us just sitting there keep telling ourselves we’re gonna do something some day but never will :)

  8. SavvyFinancialLatina February 6, 2013 at 10:00 AM

    I currently manage our investment portfolio. It’s so small!

    Our 401K and ROTH IRA are all invested in Vanguard.

    I don’t think I could trust someone else with my money. I’m too much of a control freak.

  9. Emily @ evolvingPF February 6, 2013 at 10:26 AM

    I suppose if you want actively managed funds the setup you have sounds okay, but I just don’t know why you would want active management!

  10. Jacob Erickson February 6, 2013 at 10:52 AM

    I think it’s great advice to stick with what you’re comfortable with. For me, that means handling my own money for now. Even though I may not know as much as a professional, I definitely care about my money more than they do. Plus, they have to split their time between all of their clients and may not have enough time to pay attention to my money (especially being that it isn’t too much right now). Either way, you just need to feel okay about who is handling your money.

    1. J. Money February 8, 2013 at 7:43 PM

      Exactly. And you can always switch and change your mind over the years too! Nothing saying it has to permanently stay that way forever… Good for you on jumping in and giving it a shot :)

  11. Zac February 6, 2013 at 10:58 AM

    I manage all of my own investment accounts and frankly worry that I don’t know enough to be doing it. However, a few years ago I decided that for me it is better to be 25% wrong in my allocation but in the market as opposed to waiting until I am 100% right in my allocations before investing. Stick to low-cost index funds and you’ll be amazed at the growth. I am relatively young (28) and have had great success simply following the principles of Boglehead investing. One other thing that you could look at is each brokerage firm has model portfolios that you can follow based on your risk tolerance to help you track where your portfolio is going. Overtime we’ll all learn more and may change our approach but just go for it and enjoy the ride!

    1. J. Money February 8, 2013 at 7:44 PM

      YES!!! You’ll never get to 100% certainty in anything so might as well do your best and learn and tweak along the way. Analysis Paralysis sucks your mojo completely.

  12. John S @ Frugal Rules February 6, 2013 at 11:41 AM

    I think you gave some great insight J. Money! 1% is not too bad, especially since they’re comfortable with the advisors and are not on commission. It really does come down to a time vs. money aspect many times. In this case I think it may be worth it to save the time and stay with the advisor. Too many times the retail investor will go it on their own only to make foolish mistakes. I think the suggestion of #2 to siphon some money off to self manage is a great idea, I recommend it myself quite often. That allows them to learn to get a better understanding of what’s going on plus giving them more confidence.

  13. Joanna @ Our Freaking Budget February 6, 2013 at 12:48 PM

    Right now we manage our own money simply because we have a specific purpose for it (like saving for a mortgage). Once we are a couple more years down the road, I think we’ll go the financial advisor route. Like you said, J, they know more about investing. And time is money… it’s all about opportunity cost!

    1. J. Money February 8, 2013 at 7:45 PM

      Opportunity cost is BIG too when you’re on your own working for yourself :) It’s taken me a few years to realize that but now I’m proud to say I’m more comfortable with my delegations.

  14. Stan February 6, 2013 at 1:27 PM

    The easiest and probably the least stressful way to invest is by having your accounts managed by professionals. That being said, it’s also pretty boring. I love everything about the stock market and have been managing my own retirement accounts for a couple of years now. It is definitely not the easiest thing to do. It does take a lot of my time but then again, it’s worth it because it’s a passion of mine. If you do eventually take control of your accounts I would suggest practicing for a while. There are many places like “How the market works”, and “wall street survivor” that let you have a virtual trading account. TD Ameritrade (my favorite broker) also lets you “paper trade.”

    1. J. Money February 8, 2013 at 7:46 PM

      Good idea with the practicing. Your comment also reminded me of a friend of mine who always says “Yes, I’m smart enough to learn about _______, but I choose to spend my time elsewhere and pay someone to do it for me.” :) It’s all about priorities, right?

  15. Brooklyn Money February 6, 2013 at 1:38 PM

    Unless you’ve got like $1 million to invest outside your 401K, you are paying A LOT of $ for a money manager and your returns are going to be limited by the smallish amount of capital you are starting with (although most asset managers wouldn’t take on someone w/ less than $1 million so maybe you’re in that range). So solutions = Index funds. When you have a lot more $ money managers can bring your better opportunities. For example, when you reach qualified investor status and can invest in hedge funds and stuff. Otherwise you are paying unnecessary fees for access to the same funds you can get through a discount broker.

  16. Nick @ ayoungpro.com February 6, 2013 at 5:34 PM

    This is definitely something that has been weighing on my mind as well. As I start my new career and think about beginning 401k contributions I need to learn as much as possible about this sort of thing. I’m also worried about not having much investment experience. Thanks for the info!

    1. J. Money February 8, 2013 at 7:48 PM

      Well luckily/unluckily you usually don’t have much of a choice in where your funds go with 401(k)s – or at least many options. But the 15 or 20 you do you can at least research and learn a lot knowing you’re options are limited :) Just make sure you’re investing at LEAST as much as they’re willing to match! That’s free money just prime for the picking!!

  17. My Financial Independence Journey February 6, 2013 at 8:44 PM

    I don’t think I could let someone else manage my investments. But I have relatives and some friends who have money managers and they love them. My relatives are terribly confused by finance and investing, not interested in it, and don’t want to learn. For them, even going through the index fund talk is too much finance. And so long as the money manger is performing well and meeting their needs, then all is good.

  18. stephanie February 6, 2013 at 10:39 PM

    Ah, the NYT calling out Fidelity. @Mrs Pop-my 403(b) has been puttering around, doing better than hoped. Then again, I’m in a much more aggressive Target Date fund than 90% of my age group. I can tell you, when my employer had a Fidelity Rep on site for a day, I’d be the 1st to schedule an appointment. Shout out to Chris!!! who was an awesome Rep. Now we have some guy who doesn’t even have the time of day to come on site and help us. So, while I manage now to invest 12%, with a 3% match, I am nearing the point where I’ll start putting a bit in Roth IRAs and other options, well managed by someone I trust and who has managed accounts for friends.

    J, I think your perspective is invaluable. While time IS money, at what point is my time more valuable than my money??? On this topic, I have no pride and can easily admit that I will never know enough to manage my own investments. So the value is definitely in letting a trusted professional do what he’s more than capable of doing. His track record is extraordinary, he is very in tune with each of his investors, AND he always has time for questions or comments.

    Very cool comments from all; thanks for helping me think about my own (small but growing) accounts. I really appreciate all the participation!

    1. J. Money February 8, 2013 at 7:50 PM

      So glad you got a lot out of this, friend! And even more so that you allowed me to share it with everyone so they can read/ask questions too :) Look at this nice thread you’ve started!

  19. William Cowie February 7, 2013 at 7:16 AM

    How important is your house to you? Yet, how much do you REALLY know about houses? Chances are you’re not a total expert at houses. But chances are you’re not going to let someone else buy your house for you, sight unseen. Even though you’re not a big expert on architecture, construction and real estate law, you make it your business to learn just enough about houses to enable you to get the best house you can for your circumstances: job, school, price, neighborhood, etc.

    Because your house is THAT important to you, you put in the learning and you put up with imperfection. And you get by with what you get. Sure, you would like something better. And when your income improves and your life details settle, you learn more about the neighborhoods, you learn more about your likes and dislikes, and in time guess what? You’re able to make a better purchase. Until eventually you’re finally at a point where your home is what you want it to be (more or less).

    Think that will happen if you simply told someone else to get you a house (sight unseen) with this or that budget? Especially if that someone manages a ton of houses and makes money by selling to you at the highest price?

    No. Your house is too personal, too important. It’s worth it for you to become involved.

    So, then… how important are your money and your future to you? That important?

    Think about it: investing is in many ways like buying a house, or shopping for anything else, for that matter, isn’t it? All you need is a few tools to enable you to know what to look for when shopping.

    Yes, you can get by with others managing your investments, just like you could get a realtor to “just go out there and find me a place to live. I trust you.” But surely that’s not the best way.

    You think having a professional mange your money is less risky? Go ahead, ask anyone whose 401(k) plan got crushed in 2008. Professionally managed 401(k), that is They all are. Professionals would you to think you’re not as smart as they are. Of course they do, their living depends on you believing that.

    I would argue that doing it yourself is a better way. It has definitely worked out much better for me. Yes, it takes a little more time, but it doesn’t need to be all that much. But it’s no less risky that having someone else do it.

    Not only do you get the thrill of “I did it” but you make more money as well.

    1. J. Money February 8, 2013 at 7:53 PM

      Well, kinda yes and kinda no. You don’t really have to live and hang out in your investments – nor do you *need* them per se – so I wouldn’t make that exact comparison really, but I do get what you’re saying. Always best to at least know what’s going on and do *some* research even if you’re not gonna manage them yourself…

  20. Ted Jenkin February 7, 2013 at 2:43 PM

    It is always smart to have a little bit of Warren Buffett and a little bit of Jimmy Buffett in your portfolio. Warren’s favorite holding period is forever, so you don’t want to pay a money manager to buy a bunch of indexed mutual funds or a basket of exchange traded funds in general. With the topsy turvy markets, Jimmy Buffett said it’s always five o’clock somewhere so pay an active money manager who is going to pick the winners. Set a pre-determined agreed upon benchmark to see if the performance is worth it. Most importantly for younger investors, make sure some part of your savings are parked away in an investment that will guarantee you a pension or income in retirement.

    1. J. Money February 8, 2013 at 7:56 PM

      Hahaha… you win the comment of the day! Love love LOVE both Warren AND Jimmy (“Songs You Know by Heart” was one of my very first albums owned), so this is a refreshing thing to see :) Thanks bro!

  21. MoneyStreetSmart February 11, 2013 at 10:47 AM

    I like the idea of using some of your own money and comparing the ROI to what your advisor is getting you (minus his percentage/rate of course). I have a question for you – would you ever invest with an advisor who is a close friend? Just curious.

  22. J. Money February 12, 2013 at 10:27 AM

    Ooooh that’s a tricky one. My gut says probably not though, just to be on the safe side… money and friends usually mix strangely. Maybe you could ask your friend to refer you to someone they like and trust?

  23. Jennie H May 8, 2013 at 9:46 PM

    I know I’m late to the discussion but my question seems fairly relevant. I just started a new job who matches 100% my first 7% (and puts in an additional 4% of salary each year – bonus!) into my 401k account. From previous jobs I have a small former 401k account that is now a rollover IRA as well as a small Roth IRA. Together they total about $33k. I haven’t been able to contribute to either for about a year (ugh was unemployed) but they still made small, decent gains regardless.

    Because of this new 401k, which will grow with 18% of my salary each year, should I roll the $33k into the retirement account or keep all separate? I’ve always heard that money grows faster when there’s more in it…. and $33k would be a good base. But I also know that 401k accounts aren’t as flexible with fund choices or aggressive as traditional or Roths. At the moment I don’t have extra money left to contribute to the rollover or Roth, since I’m still paying off debt.

    Your thoughts J Money?

  24. J. Money May 9, 2013 at 11:14 AM

    My thoughts are to keep everything as-is and continue rocking it :) If you’re getting 18% of your salary into your 401k each year that is INCREDIBLE! I’d do whatever it takes to make sure that’s locked in, and if you don’t have any after that then it’s all good. 18% is great for now, so way to take advantage of it :)

    And you’re right about fund choices/etc too – though not sure about “having more in an account makes more money” – I don’t think that’s correct, but I could be wrong. I’m no professional :) It may also seem like you have “a lot” of accounts too, but really that’s fairly common and you’re now set up for the future too. Like when/if you leave this job, you have the rollover IRA to put your 401k money into and also the Roth for when you have extra to apply any time. I think you’re good.