The Motley Fool Discussion Boards

Previous Page

Investing/Strategies / Bonds & Fixed Income Investments

URL:  http://boards.fool.com/mac-10k-is-petty-cash-not-a-portfolio-moving-25009757.aspx

Subject:  Re: The Net Worth of American Households Date:  1/7/2007  6:26 PM
Author:  imdajunkman Number:  19327 of 35576

Mac,

$10k is petty cash, not a portfolio.

Moving up the scale to the SEC-required $25k for a PDT account, it would take a very superior trader to make serious money from such tiny assets. In fact, a superior trader wouldn't even attempt it.

At $100k --the typical minimum for managed money-- proper diversification. can be achieved by even an average investor, but probably not a livable income. (Calculate the rate of return that $100k would have to achieve in order to produce, after taxes, even a modest $25k/year.)

At $250k under management, a net income of $25k becomes feasible, provided that investments with stock-like risks and returns are selected. But there's no way someone who traffics heavily in CD's and TIPS is going to pull down a net, annual $25k on that small of an account. .

At $500k of financial assets under management, you're now talking feasibility with even a conservative, “balanced” fund approach. At net-7% gain, the annual income is $35k, which is a modest, middling income that many people would consider quite adequate. Combine that income stream with a modest pension and some Social Security payments, and the investor has achieved a fairly robust financial structure that could sustain a lot of damage and still meet most foreseeable needs.

The tradeoff between assets under management and desired return is this: the smaller the account size, the greater the management burden, all other things being equal. The greater the account size, the lesser the threat that when bad things happen –-either a large event or many small events-- cannot be recovered from. Size matters. The more money that is being managed, the easier it becomes to reduce risk.

“To get from $10,000 t