Handling Your Own Investments Without These 2 Tools Can Make Things More Difficult

It’s not always necessary to pay top dollar for the services of a financial advisor when technology stands by ready to streamline the investing process. Separately managed accounts (SMAs) and robo-advisors, or digital managed accounts, can help you manage your investments largely on your own, but with some human help when necessary.

Both can be less expensive approaches than alternatives, and the best option for you depends on the types of investments you’re interested in pursuing and just how much human involvement you think you’ll need.

The Challenge of Investing on Your Own

Rolling the dice with your hard-earned dollars isn’t for the faint of heart. Investors just starting out might be tempted to make decisions based on emotions, according to Stu Sneen, CFA, CFP, financial planner, and founder of TwoTen Planning.

“This can lead to the Big Mistake, and investors can’t afford too many of those over an investment lifetime,” Sneen said.

New investors may not be quite sure of their goals yet or whether those goals are realistic and achievable. They may not be fully aware of the options available to them and the risks inherent in their choices. SMAs and robo-advisors won’t fully sidestep such risks, but they can make it easier to resist.

Set Your Goal: A Separately Managed Account

A separately managed account employs the assistance of professional management. You won’t have to personally deal with managing your account, but its activity is fully available to you online so you can keep an eye on gains and losses 24/7. You maintain 100% ownership of your account’s assets, and unlike a mutual fund, you’re not placed in a pool with other investors.

An SMA tends to best suit those who have a firm and identifiable investment goal in mind. Your manager will fine-tune your account’s investments based on your objectives, and you can have a voice in the strategy that’s employed. The SMA option is most suitable for those who have a strong preference for customization, according to Sneen.

“SMAs can be a useful solution, but they’re more complex and not ideal for the masses,” he said. 

Some SMA Downsides

A downside is that SMAs focus on a single asset class, but you have a say in what industries or even companies are included. Another downside is that higher minimum requirements mean SMAs are less likely to be a realistic tool for beginning investors. Fidelity, for example, requires a minimum investment of at least $100,000 for its least expensive SMA options.

“SMAs are highly personalized and provide transparency,” said Mark Kanakaris, founding president of Kanakaris & Associates and managing partner of Cherokee Tax Group, “but they come with higher fees and they require larger minimum investments, which may not be accessible to all investors. Nonetheless, for those who are able to meet the requirements, SMAs offer a customized strategy, making them a viable option.”

A Robo-Advisor: Digital Managed Accounts

You have a bit more autonomy and flexibility with a digitally managed account. A robo-advisor takes information you provide, including your income and your willingness to tolerate some risk, then maps out a strategy to achieve your goals. It will create a portfolio for you and rebalance it when necessary to keep your goals on target or if you change your mind about them.

Yes, your advisor is a tech tool, but some digital managed accounts also provide human interaction and advice over the phone if you want it. The courtesy may not be immediate, however, and you’ll have to pay for the service. The fee is typically at least half of what a professional advisor would cost you: about 0.25% to 0.50%, compared to about 1.0%. And there often is no extra charge for the rebalancing.

Disadvantages of Robo-Advisors

With a robo-advisor, your investment choices are limited to a prescribed, digital list, and you can’t stray from it if you have another type of investment in mind. At the end of the day, you’re dealing with a computer, so your investing process can be limited to specific degrees of black and white.

“They’re limited by artificial intelligence, which lacks the adaptability of human insight,” Kanakaris said. “Robo-advisors may provide a trading plan, but their algorithm-based strategies aren’t equipped to handle complex market conditions. While they’re a great entry point for new investors, they lack the personalized strategies and adaptive insights that a human advisor can offer.”

The Bottom Line 

You’re not limited to employing artificial intelligence in your investment strategy, nor do you have to turn the reins over to a high-priced human financial advisor. You can handle your investments yourself, but you’ll need the right mindset, skills, and knowledge. Will you be able to take a deep breath and think calmly when the inevitable occurs and the market goes hyper-volatile? Are you able and willing to invest the necessary time?

You might want to begin with an SMA or a robo-advisor if you’re new to investing, maybe just long enough to hone your skills and tackle a learning curve. Then you can launch out on your own, or you can continue to keep things simple with these two tools.