Category: Investing Terms
An economic moat represents a unique advantage that protects a business from intruders and upstarts, who may try to duplicate its business model in an attempt to capture customers and destroy profits. Billionaire investor Warren Buffett is credited with coining the term, explaining that when evaluating a company, he looks for “economic castles protected by ‘unbreachable’ moats.”
When I’ve read about investing and considered the services of investment advisory firms, I’ve often encountered the term of asset allocation.
What is asset allocation? A simple definition: it’s putting my proverbial eggs in multiple, uncorrelated baskets. For an investor, this process involves allocating investments among the big three types of asset classes: equities, fixed income instruments, and cash and its equivalents.
Managed portfolios seem to becoming more popular as more people want to invest, but aren’t sure how.
The practice of portfolio management has been around a long time but has more recently become part of the mainstream as portfolio management services are now accessible to the average person (who may have just a few thousand dollars to invest). Companies like Betterment and WealthFront (also called robo advisors) have begun to popularize the concept.
What is a managed portfolio or what are portfolio management services? Generally, a managed portfolio is one in which a professional manages investments on a client’s behalf. Typically, the client will pay a flat or sliding-scale fee based on the portfolio size. The fee is calculated by multiplying a percentage (such as 0.25% or 1.0% set by the investment or brokerage firm) by the assets under management (AUM). The AUM represents the dollar value of investments being managed.