Our 360 Degree Wealth Management approach is a different from that of many other wealth managers who either manage your money themselves or create a passive portfolio of mutual funds and automatically rebalance it.
Many sophisticated institutional investors, such as pension funds and large foundations use an approach to investing similar to ours. They use Modern Portfolio Theory to manage their risk. According to Modern Portfolio Theory, to adequately diversify your portfolio investments should be spread among different classes of assets whose returns are not highly correlated. Based on the groundbreaking work of Harry Markowitz and William Sharp, Modern Portfolio Theory asserts that investors should allocate their investments among different asset classes and match their asset allocation to their risk tolerance. Once the institution has an asset allocation, it hires different investment managers to make the specific investments in each asset class. Usually an investment committee will manage this portfolio of money managers over time and make changes when managers fail to perform or the needs of the institution change. WrapManager has been providing a similar service for individual investors for over eight years.
Why do we use money managers instead of mutual funds? Mutual funds are an excellent vehicle to begin building wealth. They provide diversification and professional management with a low investment minimum. However, funds can offer some real disadvantages as well. Mutual funds often generate unwanted capital gains taxes, even if you did not own the fund when the selling occurred. Funds cannot be customized to eliminate a particular stock you may already own outside the fund. Many of the best funds carry relatively high fees: front-end loads, redemption fees, annual management fees, and 12b-1 fees. For small investors, the benefits of fund investing more than make up for these disadvantages. However, as an investor’s net worth grows, more sophisticated solutions become available. Money managers can provide many of the same benefits as mutual funds with the flexibility of owning individual securities, often at a comparable cost to mutual funds.