Wealth manage can be a full-time job if you have a lot of investments. At some point, you might want to hire a money manager to help you with your finances.
When 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 since 2005 into a poor one going forward.
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 Fundrise team twice to do more due diligence on their investment process before deciding to invest in one of their funds. I really believe real estate crowdfunding is the real estate investment wave of the future given it is passive and seeks higher returns.
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.
When To Hire A Money Manage: Too Many Investment Accounts
Because I’m actively working from home and helping take care of my little ones, 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. Having just a 401(k) or an IRA where you max it out and that’s it for one year is like a walk in the park.
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 also save and invest the large majority of my cash flow each month, so there’s always something to do. Hence the thought of hiring a mont manager.
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 for money market accounts and CDs.
Financial Institution 1 – Sam
- After-tax investment account
- SEP-IRA
- Profit Sharing Keough (Solo 401k)
- Son’s 529 Plan
Financial Institution 1 – Wife
- After-tax investment account
- SEP-IRA
- Rollover IRA
Financial Institution 2 – Sam
- Rollover IRA
- After-tax investment account
Financial Institution 2 – Wife
- After-tax investment account
- Roth IRA
Financial Institution 3 – Sam
- CD (used to have 3 CDs to track)
Financial Institution 4 – Sam
- After-tax investment account
Venture Debt – Sam
- Fund 1
- Fund 2
Real Estate Crowdfunding – Sam
- Real estate crowdfunding eREIT
- Conshy, PA Commercial Property
Every single account requires the following:
- Keeping track of asset allocation
- Keeping track of cash balance
- Researching investments
- Selecting the right investments
- Reducing commission fees
- Meeting capital calls from private investments
- Keeping track of when capital is returned
- Redeploying capital
- Figuring out how each piece fits into a passive income target
- Optimizing for tax efficiency
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. As a result, hiring a money manager may make sense.
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 and investing most of my cash flow every month, 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 $15,000 a year (for 2018).
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!
Related: Strong Reasons To Hire A Financial Advisor
Refocusing My Efforts On Money Management
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. I’ve got to put on my money manager hat again more often, especially now that stocks are at frothy levels.
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:
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 money 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 hybrid digital money manager like Personal Capital 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 <0.89% fee, but I wouldn’t have missed out on 20% gains on the cash balance in 2017.
No Longer Enjoy Managing My Money
As I conclude this post, I realize that I no longer enjoy managing our investments. They give me unwanted stress, even in good times. I get bent out of shape when I don’t buy at the low of the day.
When the stock market corrects 32%, like it did in March 2020, 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.
It’s kind of sad the wealthier you get, the sometimes more stressed you will get about money. Your net worth gets more complicated and you simply have more money to lose. Hiring a money manager makes sense so you can stress less and focus your time on better things.
Stay On Top Of Your Money
If you don’t hire a money manager, at least sign up for Personal Capital. It is the web’s #1 free wealth management tool to get a better handle on your finances. In addition to better money oversight, run your investments through their award-winning Investment Checkup tool to see exactly how much you are paying in fees. I was paying $1,700 a year in fees I had no idea I was paying.
After you link all your accounts, use their Retirement Planning calculator that pulls your real data to give you as pure an estimation of your financial future as possible using Monte Carlo simulation algorithms. Your retirement is too important to not get right.
Less Stress Investing In Real Estate
One thing I realize as I’ve gotten wealthier is that the more I invest in real estate, the less stressed I am. Real estate is a core asset class that has proven to build long-term wealth for Americans. Real estate is a tangible asset that provides utility and a steady stream of income if you own rental properties. If you like less volatility, real estate is more attractive than stocks.
To reduce stress and diversify your net worth, take a look at my two favorite real estate crowdfunding platforms that are both free to sign up:
Fundrise: A way for accredited and non-accredited investors to diversify into real estate through private eFunds. Fundrise has been around since 2012 and has consistently generated steady returns, no matter what the stock market is doing.
CrowdStreet: A way for accredited investors to invest in individual real estate opportunities mostly in 18-hour cities. 18-hour cities are secondary cities with lower valuations, higher rental yields, and potentially higher growth due to job growth and demographic trends.
I’ve personally invested $810,000 in real estate crowdfunding across 18 projects to take advantage of lower valuations in the heartland of America. My real estate investments account for roughly 50% of my current passive income of ~$300,000.
I like what you said about spreading your money to reduce risk. My sister has been telling me about how she wants to make sure that her money is managed properly in the coming weeks. I’ll share this information with her so that she can look into her options for professionals who can help her with wealth management.
It’s interesting to know that a money manager will be able to help you if you don’t have the time or patience to manage your finances. My father has been struggling to manage his finances, and one of his friends recommended to hire a money manager. I will let him know about the benefits of a money manager to help him decide.
I didn’t see it mentioned in the comments but I was in your shoes. Many accounts all over the place.
The ONE thing that drove me to an advisor? My death. I have a family. What if I died? Could my wife stay on top of managing the investment accounts in addition to her normal stay-at-home duties?
I wouldn’t want her to.
We hired a fee-only advisory firm. No looking back. I am happy to pay the fees. I rest easy at night.
I hope that everyone takes this into consideration.
So you’re considering a money manager…
After you select one, how do you plan to grade their performance? Will you have a system in place to determine when to fire your money manager?
We used a manager for a few years. They cleaned up our portfolio a bit and made a bit of money. The final year, they lost 6% while we gained 6% on what we managed ourselves. We pulled everything back and now manage it ourselves.
I am bothered that your WIFE did not notice that HER SEP-IRA was not in alignment with your agreed-upon investment framework! Perhaps the solution, instead of hiring an outside money manager, is to let your wife, the one person in your life that you can trust 100% and who has nothing but the best interest of your family at heart, take a greater role in managing your investments. Not only would that reduce your burden, it would give you peace of mind knowing that your financially hands-on wife and mother of your child would be ready and able to keep everything on track financially if the day ever comes when you aren’t able to.
Don’t be too bothered. It’s my fault. I have always been the one to manage our finances and her finances and provide guidance ever since she graduated from college. Sometimes when you have a child, everything else becomes secondary.
If you or your wife never made a financial mistake before?
Here’s a list of her main responsibilities: https://www.financialsamurai.com/day-life-work-home-stay-home-parent-who-also-work/
I am in agreement that both partners should be involved in financial matters in order to be able to help with plans and decisions and to take over if required. On the other hand, “mistakes” like leaving some cash sitting around are not serious. There will be other places where you make more than expected to more than offset the places where you make less than expected. What matters is total return and constantly increasing net worth (so you made 20% return instead of 20.01% that year. You can’t always optimize everything and simplifying is probably going to make optimizing easier so you don’t miss anything serious. Family matters and health sometimes take more of a priority.