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Saturday, October 24, 2009

How to Pick a Money Manager

many forex traders use money managers to deal with the profits they are not trading with in the forex market, or to manage all their investments for an extended amount of time. The best money managers employ a number of experts in different areas of finance, business and economics.

Picking the right money manager is one of the most important decisions you will make with your money. The track records of different money managers vary far more than you would think, and a good money manager can make the difference between your retirement being spent in an apartment outside your favorite city, or on a yacht outside the port of your Caribbean island of choice.

Most quality money managers derive the bulk of their income from taking a small percentage of the size of the accounts they manage. That way, they have it in their interest to see your account to grow.

Avoid money managers that charge significant transactions-based fees. You will have an inherent conflict of interest with any money manager that sees his income grow in a significant way from anything other than the size of the accounts he manages.

Even those systems based on annual profits raise fundamental conflicts of interest. It entices the money manager to pursue overly risky investments: He or she won't have to pay you during the years your account suffers losses, but the years that see record profits, the manager gets a percentage of that.

After looking at how, exactly, your money manager earns his income, you should next examine his record. Looking at the is annual returns is not enough. These should, of course, be high. Indeed, they are the single most important detail in a money manager's reputation. But you should also examine his investment strategy. Do you think it will be a good strategy for the future? Does he base his decisions on thorough research? Does it seem like he is biased towards investments in sectors that you don't think are going to fare well in the future? All of these questions are important, and are well worth the time it takes you to answer