A well-designed managed portfolio aims to be like a skillfully crafted piece of music: It sets forth a unifying theme that commands progression from beginning to end; its instruments, well balanced and diversified; its various parts, moving in counterpoint; its whole, converging toward a unison of goal and purpose; and at the center of it all, a maestro whose job is to arrange the instruments, balance the overall shape, and maximize performance.
Simile aside, a managed portfolio is a basket of assets, created and monitored by investment professionals, and customized to match the financial goals and risk/return profile of a particular investor. It’s a personalized mix of investments, fine-tuned to resonate with the investor’s specific needs and interests, and designed to strike a harmonious balance between market opportunity and risk.
“Managed portfolios are about employing different investment strategies to suit a range of client needs,” says Keith Denerstein, Director, Guidance Product Management at TD Ameritrade. “They can be particularly useful for clients who don’t have the time or resources to constantly monitor the markets,” he says.
A (Re)Mix of Financial Assets
A managed portfolio is a sophisticated assemblage of complex instruments and functions, but its simple essence can be grasped through a few of its key attributes: personalization, diversification, and money management.
Personalization. Every investor has unique financial goals, time horizons, and risk tolerance, and managed portfolios are designed to take these differences into account. Managed portfolios are designed to be flexible. They can employ different investment strategies to suit a range of client needs, and can be responsive toward an investor’s particular financial profile. Denerstein points to Selective Portfolios, a managed portfolio solution offered through TD Ameritrade Investment Management, LLC., as an example. “Selective Portfolios combines the human experience with the online experience, to design a portfolio to match your goals, risk tolerance and investment time horizon,” he says.
Diversification. A personalized investment strategy attempts to match the mix of assets—e.g., stocks, bonds, ETFs, mutual funds, derivatives, domestic versus international assets, and so on—to your goals. Diversification can be critical to a portfolio’s success, as it aims to reduce the level of volatility that may be experienced at any one time by spreading risk across a wide range of markets that have little or no correlation to one another. Ultimately, a diversified portfolio may stand a stronger chance of weathering market cycles, as certain assets may rise even during a downturn, trying to act as a potential counterbalance to those that may fall.
Account management. Last but not least is the professional money manager whose primary role is to design, monitor, and periodically rebalance the portfolio to aim to keep it in sync with your goals.
Theme and Variations
Managed portfolios can be comprised of a wide mixture of investments, from actively-managed mutual funds that may be rebalanced often, to passively managed funds designed to mirror the performance of a broad-based index. Some portfolios are weighted toward fixed income investments, with less exposure to stock market volatility. Others, such as the Opportunistic Portfolios offered within Selective Portfolios, take a more tactical approach to attempt to take advantage of changing market conditions.
Denerstein says managed portfolios can provide many of the benefits of working with an advisor, but typically have much lower investment minimums and may cost less.
Is a Managed Portfolio Right for Me?
It all depends. If you don’t have the time or resources to commit to researching, managing, and rebalancing your portfolio on an ongoing basis, a managed portfolio could be an ideal solution.
Besides, why go it alone when you can receive personalized support from a team of investment professionals who have access to cutting-edge financial technology?
If you’re interested in learning more about managed portfolios, TD Ameritrade offers an array of managed portfolio solutions to look into. As Denerstein explains, “The managed portfolios available through TD Ameritrade Investment Management are designed to attempt to keep investors focused on their financial goals, as opposed to the daily ups and downs of financial markets.”
Free from the distractions of market noise, you can focus on the final mix: the big picture—your financial goals.