PRISM: Prioritizing Your Goals

Lesson 2: Identifying the Impacts of Different Types of Accounts

Reflect 

Now that you've taken the time to fill out the coinciding worksheet, it's time to begin the first main part of identifying your investment management preferences.  

However, before we can help you choose a wealth management preference that fits your needs, you will need to identify the types of accounts you currently hold. For example, you may have a 401k, 403b or 529 plan, or a thrift-savings plan. You will also want to identify if you rely on a robo-advisor, a mutual fund company, a brokerage account, etc.  

Thinking about the type of account you have will help you identify potential constraints you may have which will ultimately decide which specific management preference is best for your individual situation. 

Engage 

If you haven't done so already, please complete the "Identifying Your Investment Management Preferences" worksheet. Then, we encourage our members to identify and list the different types of accounts you have in your current portfolio which may impact how you choose your investment management preferences. 

Participate 

Complete the worksheet and answer these two questions in the discussion below: 

1. What types of investment accounts do you have? 
2. How do you think this will impact your overall investment management preferences? 

Discussion Example 

1. I have both a traditional and Roth IRA as well as brokerage account. 
2. I think this won't affect my overall investment management preferences as much as holding other accounts because I am planning to continue investing on my own and relying on partially choosing individual stocks as well as relying on ETF funds to partially passive invest. 

View and download the Identifying Your Investment Management Preferences worksheet 

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Jenna Brashear
AAII Community Manager
Chicago, IL
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What types of investment accounts do you have?

As recently-retired person, I have a pension for day-to-day stability (replacing previous salary, which did the same thing) and an aggressive-oriented collection of 401K, personal IRA, and regular investment accounts.  The 401K is fund-based per plan allowance and suits the "hands-off" investment style, the personal IRA and regular investment accounts are a combination of funds and individual equity/bond selections that is mostly "hands-on".

How do you think this will impact your overall investment management preferences?

One feature of modern low-cost investing that I take advantage of is multiple brokerage accounts (mostly historic artifact, but having access to differing features is nice) and multiple accounts to create distinct "buckets" (this account focuses on equities, that account is for fixed income, etc) My management preference overall is "hands-on", driven by:

• AAII articles that demonstrate the challenge of professional management to consistently beat the market and it is easy to do worse. There is a lot to be said for accepting market returns with a "hands-on" choice of an index fund. It seems any low-cost fund will do.
• The professional management service that comes with the 401K program presents itself as "trust us, we're experts" but without documenting performance. Their recommendations seem pretty "textbook" and so, easy to essentially duplicate on one's own. This would be your "hands-on" risk/return management selection of equity fund vs bond fund. It seems any ratio from 1 to 1/2 puts you in the ballpark, after you have done the PRISM offensive/defensive worksheet.
• A big part of my management preference is in Funds, which are only reviewed occasionally. It is "hands-on" that I made the Fund selection, but "hands-off" that I make a point to review it only occasionally, letting time-in-market do its magic.
• I specifically set up buckets for my tactical attempts to "do something", limiting the hit that bad decisions can have, while testing my skill at being really "hands-on".

The other way to interpret "impact" is performance. With several decades of investment history (and a really timid start), I can find individual years where my portfolio did better and ones that did worse than the S&P 500. Over the long haul, I come out several percentage points lower than the S&P 500. Overall, I would have been better off with everything in a simple S&P 500 fund, but it is hard to wean off gambling on my clever ideas.

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Hugh POLING
amateur radio station KC7HP
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I  retired abpit 10 years with my spouse  wehave 3 accounts with a  financial manager who has full discretion and one account which I have discretion and can pick whichever stocks or bonds to buy. It currently has a balance of 600K and I use dividends to help fund grandchillren's educational accounts. I consider my self an informed but unskilled investor.

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H HELM
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Original Message:
Sent: 02-04-2022 12:12
From: Hugh POLING
Subject: Identifying Your Investment Management Preferences: Lesson 2

What types of investment accounts do you have?

As recently-retired person, I have a pension for day-to-day stability (replacing previous salary, which did the same thing) and an aggressive-oriented collection of 401K, personal IRA, and regular investment accounts.  The 401K is fund-based per plan allowance and suits the "hands-off" investment style, the personal IRA and regular investment accounts are a combination of funds and individual equity/bond selections that is mostly "hands-on".

How do you think this will impact your overall investment management preferences?

One feature of modern low-cost investing that I take advantage of is multiple brokerage accounts (mostly historic artifact, but having access to differing features is nice) and multiple accounts to create distinct "buckets" (this account focuses on equities, that account is for fixed income, etc) My management preference overall is "hands-on", driven by:

• AAII articles that demonstrate the challenge of professional management to consistently beat the market and it is easy to do worse. There is a lot to be said for accepting market returns with a "hands-on" choice of an index fund. It seems any low-cost fund will do.
• The professional management service that comes with the 401K program presents itself as "trust us, we're experts" but without documenting performance. Their recommendations seem pretty "textbook" and so, easy to essentially duplicate on one's own. This would be your "hands-on" risk/return management selection of equity fund vs bond fund. It seems any ratio from 1 to 1/2 puts you in the ballpark, after you have done the PRISM offensive/defensive worksheet.
• A big part of my management preference is in Funds, which are only reviewed occasionally. It is "hands-on" that I made the Fund selection, but "hands-off" that I make a point to review it only occasionally, letting time-in-market do its magic.
• I specifically set up buckets for my tactical attempts to "do something", limiting the hit that bad decisions can have, while testing my skill at being really "hands-on".

The other way to interpret "impact" is performance. With several decades of investment history (and a really timid start), I can find individual years where my portfolio did better and ones that did worse than the S&P 500. Over the long haul, I come out several percentage points lower than the S&P 500. Overall, I would have been better off with everything in a simple S&P 500 fund, but it is hard to wean off gambling on my clever ideas.

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Hugh POLING
amateur radio station KC7HP
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Would you care to expand on what the Financial Manager has done to bolster your confidence in his management and/or reduce money-management stress?  thanks, Hugh

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Hugh POLING
amateur radio station KC7HP
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Original Message:
Sent: 02-07-2022 11:03
From: H HELM
Subject: Identifying Your Investment Management Preferences: Lesson 2

I  retired abpit 10 years with my spouse  wehave 3 accounts with a  financial manager who has full discretion and one account which I have discretion and can pick whichever stocks or bonds to buy. It currently has a balance of 600K and I use dividends to help fund grandchillren's educational accounts. I consider my self an informed but unskilled investor.

------------------------------
H HELM
------------------------------


Original Message:
Sent: 02-04-2022 12:12
From: Hugh POLING
Subject: Identifying Your Investment Management Preferences: Lesson 2

What types of investment accounts do you have?

As recently-retired person, I have a pension for day-to-day stability (replacing previous salary, which did the same thing) and an aggressive-oriented collection of 401K, personal IRA, and regular investment accounts.  The 401K is fund-based per plan allowance and suits the "hands-off" investment style, the personal IRA and regular investment accounts are a combination of funds and individual equity/bond selections that is mostly "hands-on".

How do you think this will impact your overall investment management preferences?

One feature of modern low-cost investing that I take advantage of is multiple brokerage accounts (mostly historic artifact, but having access to differing features is nice) and multiple accounts to create distinct "buckets" (this account focuses on equities, that account is for fixed income, etc) My management preference overall is "hands-on", driven by:

• AAII articles that demonstrate the challenge of professional management to consistently beat the market and it is easy to do worse. There is a lot to be said for accepting market returns with a "hands-on" choice of an index fund. It seems any low-cost fund will do.
• The professional management service that comes with the 401K program presents itself as "trust us, we're experts" but without documenting performance. Their recommendations seem pretty "textbook" and so, easy to essentially duplicate on one's own. This would be your "hands-on" risk/return management selection of equity fund vs bond fund. It seems any ratio from 1 to 1/2 puts you in the ballpark, after you have done the PRISM offensive/defensive worksheet.
• A big part of my management preference is in Funds, which are only reviewed occasionally. It is "hands-on" that I made the Fund selection, but "hands-off" that I make a point to review it only occasionally, letting time-in-market do its magic.
• I specifically set up buckets for my tactical attempts to "do something", limiting the hit that bad decisions can have, while testing my skill at being really "hands-on".

The other way to interpret "impact" is performance. With several decades of investment history (and a really timid start), I can find individual years where my portfolio did better and ones that did worse than the S&P 500. Over the long haul, I come out several percentage points lower than the S&P 500. Overall, I would have been better off with everything in a simple S&P 500 fund, but it is hard to wean off gambling on my clever ideas.

------------------------------
Hugh POLING
amateur radio station KC7HP

What types of investment accounts do you have?

I manage traditional IRA, ROTH IRA, and brokerage accounts for me and my wife. We have a total of six accounts. I also manage six UTMA accounts for our six grandchildren.

How do you think this will impact your overall investment management preferences?

I prefer an active approach to managing our investments and can afford to do this because I am "retired." Although we do have some dividend growth ETF investments, those are just for simplicity as I reduce the number of stocks we hold. I also trade covered call options and cash covered put options. So, I am a fully hands-on investor. Seeking Alpha provides a significant amount of data that I use to analyze our investments and potential investments. AAII provides some interesting educational resources, but I don't use the extra services due to the fact that Seeking Alpha already provides more than enough at a very reasonable annual cost. I also have advanced Excel skills, so I am able to manage a lot of information about our portfolio and make informed decisions based on my analysis.

I am able to cover future RMD's with dividends and dividend growth from our investments, so I don't have to think about selling during periods of volatility, during market corrections or during bear markets.

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WAYNE WINQUIST
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Thanks for this little nugget Wayne.

"I am able to cover future RMD's with dividends and dividend growth from our investments, so I don't have to think about selling during periods of volatility, during market corrections or during bear markets."

I haven't devled into the RMD part of my plan yet.  But this little nugget comes with me when I do!

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RICHARD
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Original Message:
Sent: 02-07-2022 16:25
From: WAYNE WINQUIST
Subject: Identifying Your Investment Management Preferences: Lesson 2

What types of investment accounts do you have?

I manage traditional IRA, ROTH IRA, and brokerage accounts for me and my wife. We have a total of six accounts. I also manage six UTMA accounts for our six grandchildren.

How do you think this will impact your overall investment management preferences?

I prefer an active approach to managing our investments and can afford to do this because I am "retired." Although we do have some dividend growth ETF investments, those are just for simplicity as I reduce the number of stocks we hold. I also trade covered call options and cash covered put options. So, I am a fully hands-on investor. Seeking Alpha provides a significant amount of data that I use to analyze our investments and potential investments. AAII provides some interesting educational resources, but I don't use the extra services due to the fact that Seeking Alpha already provides more than enough at a very reasonable annual cost. I also have advanced Excel skills, so I am able to manage a lot of information about our portfolio and make informed decisions based on my analysis.

I am able to cover future RMD's with dividends and dividend growth from our investments, so I don't have to think about selling during periods of volatility, during market corrections or during bear markets.

------------------------------
WAYNE WINQUIST
------------------------------

1. What types of investment accounts do you have? 

We have 401(K)s, traditional IRAs, and my pension.  Boring but effective so far.  I'm am expecting this to change since I have more time to manage our portfolio.   

2. How do you think this will impact your overall investment management preferences? 

The pension will not have an impact on my management preference.  It is what it is and I am grateful that I have it.

The 401(k) will have an impact on my management preference.  The decision to keep most or a little of our funds in the 401(k) has to be made.  I have a inkling that I will be moving a sizeable amount into other IRAs that I actively manage with ETF selections and some stock selections.  Owning individual stock will be the biggest change to my management preference.

The Traditional IRAs may be reallocated as needed but still will be in index ETF's.  I like low cost in everything.

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RICHARD
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