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May 3 2010 12:00AM

Question


Recently, my spouse said, "The market is up 12 percent and our diversified investments are not doing that well. We need to move our money and manage it ourselves." By way of background, our combined portfolios are up about 7 percent. My spouse and I are in our mid-50s. We have about $800,000 in combined assets. Should we try to manage it ourselves and make more?

Answer


"It's important to compare your returns with a blended index that is in line with your asset allocation," said FPA member John Eaton, CFP®, a senior financial planner with Summit Wealth Management. "This will help you determine how well your money manager is performing vs. a benchmark — commonly referred to as 'alpha'. Comparing a diversified portfolio to an index like the S&P 500 may not be an appropriate comparison."

As for the decision to manage your own portfolio, Eaton said that's dependent on your ability to analyze, construct, and monitor your portfolio given your time constraints as well as your desire to continually monitor the investments and asset allocation you choose.

"Instead of focusing on absolute returns, your portfolio should be invested in a way that gives you the highest probability of having your financial plan succeed and at the same time keeping volatility and risk at a minimum," Eaton said.

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