Q: I am 64 years old, retired, with a pension from a state government. I am considering investing a portion of my IRA funds in a managed portfolio. The proposed portfolio is 83 percent bonds and 17 percent stocks. The management fee is 1.1 percent. Is that a reasonable fee for such an account?
A: The quick answer to that question is dependent on whether you have compared that fee with other comparable managed portfolio accounts with other companies. You also need to see if there are any other fees involved. Some companies will require you to pay a percentage of the amount you invest upfront when you deposit the money. Others may require a fee to withdraw the money during the first three to six years of handling your account.
Still other funds have other fees in addition to the management fee.
Make sure you know what all the fees and expenses are to this account before you invest. Given that there are other investment options with far lower fee structures, you then need to determine if this managed portfolio is right for you.
You’ve indicated the ration that’s in the account between bonds and stocks and then need to make sure you understand the risks involved in having your portfolio highly leveraged with bonds. If you are comfortable with that choice, then your comparison will be with other companies that offer similar products and then comparing the fees and costs.
Finally, when you see what all the fees and costs are, you then should see whether the managed fund that you are considering has had a track record that is better or worse than other comparable funds. While those past returns may not indicate whether they will perform well in the future, you probably don’t want to be with a company that generally has lagged the market and may continue to lag the market. Given this information, you then need to see whether this fund and other comparable funds have done better than lower cost index funds.
You could be better off putting 83 percent of your money in an index bond fund and 17 percent in an index stock market fund. Some index funds have expense ratios that are one-tenth to one-fifth of the managed fund expense you were quoted. Those are your choices to make and you may elect to talk further with a financial adviser or even a representative of the company offering the managed fund and then talk to a representative at a different company offering a low-cost index fund.