It is perfectly normal to have “play” accounts outside of your managed assets. If you are working with a money manager, an outside account allows you to explore a different asset class or level of risk than your manager may use. However, your adviser should know about the assets so they can properly plan for you.
Since the recent election, we have seen this scenario play out on multiple occasions as investors have purchased shares in a “Trump Portfolio.” These investors saw a fund manager in the news touting a portfolio of stocks that were expected to outperform given the policies of the current presidential administration. However, when these investors mentioned their purchase to their financial advisers, the advisers smartly knew they had to look into this more. It turned out that many of the stocks that were in this specialized “Trump Portfolio” were the same stocks that the advisers had selected for the investor’s managed accounts. By purchasing more shares, the investors unknowingly pushed their allocation out of line and overweighted themselves in several stocks in the same industry. Furthermore, it was discovered that the fees the investors were paying for investing in this “Trump Portfolio” were more than three times their management fee with their financial adviser for many of the same stocks. In this case, with pooled assets, the fees came off the net asset value of the underlying investments. Regardless how well the assets performed, the fees took more than 3% off the top.
It is not surprising that during a big change, like a presidential election, some financial professionals will package products that cater to the hype. This a gimmick, not a strategy. They play on investors’ emotions to try to entice them to buy this packaged investment product, when in reality, any individual investor could do the same on their own. The investor and the adviser could look at the underlying investments and choose to invest in a similar manner.
You and your money manager should not blindly rebalance your portfolio to include new holdings because our country elected a new president. A portfolio—especially a retirement portfolio—should have a long-term perspective with investment choices based on fundamentals like financial strength, financial safety, value and growth prospects. At the end of the day, who the President of the United States is has little to do with the performance of your portfolio. You may decide to adjust sector allocation weightings or lessen your exposure to rate-sensitive holdings to reflect our current economic cycle. Overall, money you need within the next 10 years should be in fixed-income investments, held to maturity, to protect the principal. Any money you do not need within the next 10 years should be invested in the stock market for growth.
Money management is certainly difficult, but when you are providing financial planning, implementing tax strategies, estate planning, and accounting for liability and risk tolerances—financial planning becomes a full-time job. We often have clients who call with a “hot stock” tip that they are itching to invest in. We review the stock and if it doesn’t meet our criteria, we let them know. If they insist on investing, we separate the money into a new account to let them invest as they wish. The point is that we have the benefit of knowing about the account. We can modify the rest of their financial plan to account for the alternative investment. In this case, the investors were lucky that the underlying investments were assets their adviser would recommend. However if you’re investing in something that doesn’t fit with the strategy you have in place, should you really be investing in it?
If you have questions regarding your overall portfolio, the experts at Henssler Financial will be glad to help:
- Experts Request Form
- Email: experts@henssler.com
- Phone: 770-429-9166.
This article is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.
