When Is It Time To Hire A Money Manager? Wealth Management Can Be A Full-Time Job

When to hire a money managerWhen I sold my rental house, I thought my stress would go down at least 80%. After all, my tenants and the maintenance issues were really bumming me out. But what I didn’t anticipate was the rise in stress from having to reinvest a sum 4X greater than I had ever invested before. The last thing I wanted to do was turn a strong performing investment into a poor one.

I went through many hours of deliberation regarding where to invest the proceeds. I wrote quarterly investment reports to track my progress. I stayed glued to the laptop during market hours for months trying to buy stocks and bonds during pullbacks. Further, I went out to dinner with the RealtyShares investment committee twice to do more due diligence on their investment process before deploying $500,000 in additional capital. It was exhausting.

As someone who worked in the finance industry, consulted with a couple digital wealth advisors, and who has been investing his own money for over 20 years, I was familiar with the entire process of managing money. However, I’ve finally reached an inflection point. 

Too Many Investment Accounts

Because I’m actively working from home and helping take care of my little one, my time is stretched. When you earn money, the path of least resistance is to simply hoard cash. At least by doing nothing, you won’t lose money. But hoarding cash since 2009 has been a huge mistake.

What happens as you get older is that your finances tend to get more complicated. Job changes create dilemmas for whether you should rollover your 401(k) into an IRA or not. You might start a business and launch your own SEP-IRA or Solo 401(k). Or you might have some nice liquidity windfall after selling your company. The list goes on and on.

If I was just managing one family investment account, staying on top of our investments would be a piece of cake. But as a middle age parent who feels its important to diversify, I’ve had a lot of investment changes and opportunities since college.

I currently manage or keep track of 17 financial accounts at multiple financial institutions. Each financial institution has something different to offer. Further, we spread out risk, partly due to the $500,000 FDIC insurance cap.

Financial Institution 1 – Sam

  1. After-tax investment account
  2. SEP-IRA
  3. Profit Sharing Keough (Solo 401k)
  4. Son’s 529 Plan

Financial Institution 1 – Wife

  1. After-tax investment account
  2. SEP-IRA
  3. Rollover IRA

Financial Institution 2 – Sam

  1. Rollover IRA
  2. After-tax investment account

Financial Institution 2 – Wife

  1. After-tax investment account
  2. Roth IRA

Financial Institution 3 – Sam

  1. CD (used to have 3 CDs to track)

Financial Institution 4 – Sam

  1. After-tax investment account

Venture Debt – Sam

  1. Fund 1
  2. Fund 2

Real Estate Crowdfunding – Sam

  1. RealtyShares Domestic Equity Fund
  2. Conshy, PA Commercial Property

Every single account requires the following:

  1. Keeping track of asset allocation
  2. Keeping track of cash balance
  3. Researching investments
  4. Selecting the right investments
  5. Reducing commission fees
  6. Meeting capital calls from private investments
  7. Keeping track of when capital is returned
  8. Redeploying capital
  9. Figuring out how each piece fits into a passive income target

As you can see, doing everything right for all accounts can take a lot of time. Further, the more money you have to manage, the more time you will naturally spend because there’s simply more at stake to lose and win.

Here is the perfect example where more money does not bring financial peace of mind. When I had just $100,000 to manage, I couldn’t care less if the market corrected 20%+. I had nobody to support and a job that could easily make up for any losses and then some.

With a sudden $1.8M liquidity event from selling my home on top of managing my existing investments, I was forced to dedicate a lot more brain power to money management.

My Latest Money Management Error

After the market meltdown in early February 2018, I asked my wife to cut three checks: one to my SEP-IRA, one to her SEP-IRA, and one to our son’s 529 account. As business owners, a business can contribute 25% of our salaries to our individual SEP-IRA accounts, e.g., $120,000 salary = $30,000 contribution. As I had already superfunded my son’s 529 plan in 2017, only my wife and others are eligible to contribute up to $14,000 a year.

I invested some of the proceeds based on our agreed upon investment framework in all accounts when I realized about 25% of my wife’s SEP-IRA had been sitting in cash for who knows how long. I was completely surprised because I try to keep all our investment accounts 100% invested. Our cash needs are met separately through various savings accounts.

Due to too much cash in my wife’s SEP-IRA account, her account lost out on potentially thousands of dollars in lost paper profits in 2017. But I’m not sure exactly how much she lost because I don’t remember how long the cash had been sitting there!

Busy buying stocks during the depths of the February sell-off in one account.

Refocusing My Efforts

From now on, I need to go through each account and not only check the holdings and asset allocation, but also make sure there is no excess cash sitting around doing nothing.

What’s also important is making sure my investments makes sense in each account. For example, I’m more inclined to invest and trade more aggressively in my pre-tax investment accounts because I know I won’t be touching them until age 60 and there are no taxes to file.

For my after-tax investment accounts, they are more conservative as they are accounts that will be first accessed during a liquidity crunch or when I finally buy that Hawaiian dream home. Since I’ve got to pay taxes on any dividends or capital gains, my after-tax investment accounts have lower turnover and house all my tax-free municipal bonds.

Finally, I’ve got to do a top down asset allocation of all my accounts to make sure the overall investment asset allocation fits my risk profile and investment objectives. I used to do this manually, but since 2012 I’ve linked my investment accounts to Personal Capital’s dashboard and can just click their Investment Checkup tab to get a snapshot. Below is an example:

Personal Capital Asset Allocation

Log onto dashboard and click Investing -> Holdings to get an overview of all accounts

When Is It Worth Paying A Money Manager?

I’m close to paying a money manager to manage our finances, but I am still reluctant to pull the trigger because I’ve always managed my money, dislike paying fees, and realize a wealth manager can only manage some of my accounts, not all.

The only accounts a wealth manager can manage are our four after-tax investment accounts.  This means I would still have to manage 13 other investment accounts. As a result, I presently don’t think it’s worth hiring a money manager. Only if the money manager could manage the large majority of my investment accounts would I consider hiring one.

Some considerations for when you should hire a wealth manager:

1) When they can manage most of your investments.

2) When you have no desire to manage your money.

3) When you have no understanding of investing.

4) When investing stresses you out and keeps you up at night.

5) When your job, business, or family keep you too busy to even review your investments.

6) When you can do a much better job making money elsewhere.

7) When they’ve showed a fantastic long-term track record.

8) When you calculate the estimated annual fee and feel you’d happily pay the amount to not have to manage your own money.

9) When you have a significant amount of assets and would feel better if someone or some team were keeping watch every day.

If I had a digital money manager managing my investments, I never would have had a 25% cash weighting in my wife’s SEP-IRA for months. They would have automatically invested my cash based on a pre-determined investment asset allocation, which I’d agreed upon. I would have had to pay a 0.25% fee, but I wouldn’t have missed out on 20% gains on the cash balance in 2017.

Unfortunately, as far as I can tell, digital wealth advisors can’t manage a SEP-IRA account, so the responsibility to manage our pre-tax investment accounts will always fall on me.

As I conclude this post, I realize that I no longer enjoy managing our investments. They give me unwanted stress, even in good times – although things are looking dicey now. I get bent out of shape when I don’t buy at the low of the day. When the stock market corrects 10%, it’s hard for me to think of anything else until I see stabilization. When an investment soars 50%, I don’t get pleasure either because I’m not using the profits for anything.

Maybe it’s better to outsource my money management responsibilities and the stress it comes with after all. If I’m not happy with managing money during good times, I definitely won’t be happy managing our family’s money during bad times.

Readers, anybody spend a significant amount of time managing their money? Do you feel like investing can sometimes be a full-time job? Do you feel more stressed managing money when there’s more to manage? If you have a money manager, what are some reasons why you hired them?

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