What is SMA Investing?

by | Apr 7, 2022 | Financial Independence, Investment Management

What is SMA Investing?

by | Apr 7, 2022 | Financial Independence, Investment Management

getting started with SMA investing

In the past, SMA investing (separately managed accounts) was only available to the already-wealthy.

If you wanted a separately managed account in previous decades, you might have to scrape up tens of millions of dollars just to get one established…

…And, needless to say, that’s just not possible for your average tech worker… even the highly-paid ones.

They were incredible investment vehicles, but they just weren’t available to the average person.

So when the investment requirement for an SMA went down to an amount many of my clients could afford, I was jumping for joy. (Honestly, I’m not sure I want to imagine how goofy I looked in my office getting excited over this, but it was some of the best news I’d heard in a while… and I knew it would be absolutely life-changing for my clients.)

So… what is SMA investing?

So let’s talk about why this reduction in investment money required for an SMA was such good news:

An SMA, or a separately managed account, gives you amazing levels of control over your investments: you can invest at the securities level, and you can tailor what you invest in to meet your exact, specific needs and preferences.

When you’re investing in mutual funds or index funds, on the other hand, you can’t do this. You either have to buy all the stocks included in that fund, or you don’t buy any of it. And you can’t exclude any company stocks whose ethics you don’t agree with.

Not to mention the tax benefits:

Instead of getting slapped with average gains or average losses from a mutual fund, you can manage your losses at the individual stock level, making it easier to manage some of the large gains you experience with an IPO.

Can you give me an example of how SMA investing works?


Let’s say you’re a brand new investor buying stock in an S&P 500 index fund.

When you purchase these shares, you’re buying shares in all 500 companies… no more, no less, no picking and choosing. What you get is what you see on that list of 500, and there is no option to customize.

From those shares, your gains and losses for the year are calculated based on the performance of all 500 of those stocks together. Some stocks will be big winners, and some stocks will be big losers. You don’t get to account for those wins and losses individually though, only what the average win or loss total is over the year for that entire fund.

This might not seem like a big deal, but let’s take the year 2020 for example:

During 2020, companies like Tesla and Etsy showed large gains, returning 743% and 301%, respectively.

Other companies in the S&P 500, on the other hand, didn’t do so well.

Carnival Cruise Lines lost 57%, and Occidental Petroleum lost 56%.

If you had invested in each of these stocks individually (or through an SMA), you could use the losses of Carnival Cruise Lines and Occidental Petroleum to offset your large gains form Tesla and Etsy… or on any big gains you might have experienced outside of the S&P 500 fund, like if you held individual stocks in Zoom or went through an IPO.

How do I set up an SMA?

The way separately managed accounts work is in the name itself: they are separately managed for you, by a professional asset management firm.

They’re not something you can just log into your Fidelity or Vanguard account and purchase… you have to do the planning work with a financial advisor to set up your SMA requirements and how you want your own, personal SMA to work.

A big advantage of SMA investing is you’re not subject to the whims of fund managers, nor do you have to share your investments with others in a fund-style setup. The drawback of that, though, is that it does take time, research, and homework to set one up properly.

The best first step is to talk to a financial advisor about your financial situation and where an SMA investing strategy could fit. They’ll be able to let you know how soon you can start SMA investing, and advise you on which strategies to employ within your SMA first.

Get Started with SMA Investing

At KB Financial Advisors, we’re able to offer SMA investing to individuals with portfolios of $2 million or more.

But if your portfolio isn’t that large yet, don’t let that stop you:

We work with plenty of young professionals working their way towards wealth, and we’d be happy to talk to you about strategies to grow your investments to get you there. (Maybe sooner than you thought possible!)

Book a no-obligation discovery call with us here, and we’ll talk to you soon!

Since passing the Certified Financial Planner (CFP) exam in November 2009, Landon has dedicated himself to the needs of busy young professionals. Before joining KB Financial Advisors in 2012, Landon founded Cumberland Wealth Planners in 2010 to serve clients in Nashville, TN. Landon took over the On Your Way to Wealth program in 2014 to help KB Financial Advisors further expand their work with young tech professionals in San Francisco who have stock options.

When he’s not on a plane to San Francisco, Landon lives in Nashville, TN with his wife Melissa and their three children.


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