buy mutual funds

Since Americans living abroad are frequently denied the opportunity to buy mutual funds, how can investors diversify their portfolios without being responsible for the day-to-day management of dozens of individual stocks and bonds?

One possible answer is a separately managed account, or SMA. An SMA is a customized portfolio offered by a brokerage firm and managed by an independent investment management firm or money manager. Unlike a mutual fund, where you buy a unit of the “basket” of investments, in a SMA you actually own the stocks/bonds/ETFs (exchange traded funds) in the portfolio. The assets are in your name rather than in the name of the company that manages the fund.

Are SMAs only for the very rich?

Until recently, due to their high administration costs, SMAs were only available for individuals who could put down a minimum of $1 million. However, developments in technology opened this type of program to the wider public. In some cases now, the minimum could be as low as $50,000.

The services of a money manager are very useful since there may be times when you want to customize your portfolio in a more precise manner. With a mutual fund, you can’t make specific changes in the portfolio because the fund is a package deal. With an SMA, you can be more involved with your investments and give general guidelines to the managers, but without being entirely on your own.

Tax benefits

Depending on when you invest your money, you may gain certain tax benefits from owning an SMA as opposed to a mutual fund. SMA investors aren’t liable for the capital gains of their stocks prior to their purchasing, while mutual fund investors are responsible for all gains, even prior to their purchase, because they own part of the “basket”. When diversifying your portfolio, speak with your financial advisor to find out if an SMA can help you achieve your financial goals.

For more information about SMAs, watch this video.

Douglas Goldstein, CFP®, is the Director of Profile Investment Service, Ltd., which specializes in helping people who live in Israel with their US dollar assets and American investment and retirement accounts. He helps olim meet their financial goals through asset allocation, financial planning, and using money managers.

Published February 22, 2016. Updated August 2019.

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