Definition
A managed account is an investment account that is owned by an individual investor and overseen by a hired professional money manager. In contrast to mutual funds, which are professionally managed on behalf of many mutual-fund holders, managed accounts are personalized investment portfolios tailored to the specific needs of the account holder. They provide the investor with more control over tax considerations and a bigger flexibility, but usually require a larger investment minimum.
Key Takeaways
- A Managed Account is a type of investment account where a portfolio manager is responsible for investments decisions. The client grants the manager discretion to make trades on their behalf to optimize their portfolio.
- Managed Accounts provide a high degree of customization to the individual investor which can be tailored based on their risk tolerance, investment objectives, time horizon and other specific needs. This level of personalization lets investors maximize their profits and manage their risk effectively.
- While Managed Accounts provide expert advice and active management, they also often come with higher fees compared to passive investments like index funds or exchange traded funds. Investors should factor in these costs when deciding whether or not to choose a Managed Account.
Importance
A managed account is essential in finance as it provides individuals, particularly investors, with a more personalized and effective approach to wealth management.
It allows professional money managers, based on an individual’s financial objectives, risk tolerance, and investing preferences, to make direct investment decisions on their behalf.
This method not only eliminates the need for the investor to constantly monitor the markets and their investments but also ensures that financial strategies align with their changing financial needs and goals.
Additionally, managed accounts often provide greater transparency, flexibility, and potentially improved performance, making them a key component in financial planning and investment management.
Explanation
Managed accounts serve a unique purpose in the realm of investing and wealth management. They are personalized investment accounts that are tailored to the individual goals, risk tolerance, and investment preferences of the owner.
Managed by professional money managers who make all investment decisions, these accounts are designed to free the owner from the burdens of daily investment management while aligning investments with their preferred strategy. They are designed to provide investors with a more personalized investment portfolio that is typically more tailored and sophisticated than what you would find in a traditional mutual fund or ETF.
The purpose of a managed account is also to provide a higher level of service than what one might receive in a more traditional investment setting. Some benefits include direct ownership of securities, better control over tax consequences, and flexibility to adjust the portfolio as one’s needs change.
In essence, with a managed account, the investor gains access to a personal financial manager who oversees the investment strategy and operates according to the investor’s interests. This feature often suits high net worth individuals who require more sophisticated wealth management strategies, or investors who value personalized investment advice and strategy.
Examples of Managed Account
Personal Investment Portfolio Management: This is perhaps the most common example of a managed account. In this scenario, an individual hires a professional investment manager or a financial advisor to manage their investment portfolio on their behalf. This could include the buying and selling of individual stocks, bonds, and other securities, all aimed at increasing the owner’s wealth and managing risk according to the individual’s goals and risk tolerance.
Retirement Accounts: Managed retirement accounts like 401(k)s and IRAs also fall under this category. They are usually managed by professionals who make investment decisions on your behalf to ensure your funds are invested in a beneficial way for your retirement. The decisions are based on an individual’s retirement horizon and risk appetite.
Managed Forex Accounts: Forex (foreign exchange) trading can be highly volatile and risky. Therefore, some people choose to have their forex accounts managed by professional traders. These experts understand the complexities of forex markets and make trading decisions to maximize potential gains and minimize potential losses. This helps individuals take advantage of opportunities in forex markets without needing to understand and manage all the details themselves.
FAQs on Managed Account
What is a Managed Account?
A Managed Account is an investment account owned by an individual investor and overseen by a hired professional money manager. Unlike mutual funds, which are professionally managed on behalf of many mutual-fund holders, managed accounts are personalized investment portfolios tailored to the specific needs of the account holder.
What are the benefits of a Managed Account?
Managed accounts offer many benefits including professional management, personalized investment strategies, tax efficiency, and transparency. You will have a dedicated manager managing your account who can implement a strategy that aligns with your specific investment goals, risk tolerance and time horizon.
Who can open a Managed Account?
Generally, high net-worth individuals or institutional investors use Managed Accounts. However, there are managed account options available that cater to investors with lower minimums.
Are Managed Accounts safe?
While Managed Accounts are generally safe as they are managed by experienced professionals, they are not risk-free. Like any other investment, they are subject to market risk and the potential for loss. The key is to choose a reputable and experienced account manager.
Are Managed Accounts better than Mutual Funds?
Whether a Managed Account or Mutual Fund is better for you will depend on your individual circumstances, investment goals, and risk tolerance. While Managed Accounts offer more personalization and control, Mutual Funds can provide broad diversification and may be less costly. It is recommended to consult with a financial advisor to make an informed decision.
Related Entrepreneurship Terms
- Investment Management
- Discretionary Portfolio
- Asset Allocation
- Risk Management
- Fee-based Advisory
Sources for More Information
Sure, below are some reliable resources for you:
- Investopedia: Provides a vast array of financial information including articles and videos on many finance topics including managed accounts.
- Morningstar: Offers comprehensive data on investment, including managed accounts, and research reports from financial and asset management experts.
- Charles Schwab: A leading financial services company that provides insights on various topics such as managed accounts.
- Fidelity Investments: A multinational financial services corporation which guides about various investment avenues, including managed accounts.
