Separate Ways

With separately managed accounts (SMAs), investors hold individual securities - stocks as a rule - selected by esteemed money managers.

Historically, SMA minimums were in the $500,000 to $1 million range, but some now are as low as $25,000 and might drop even further.

Advocates insist that investors have more tax control with SMAs, compared with investing in mutual funds. With SMAs, you know the tax basis of your investments. If a mutual fund sells appreciated holdings, relatively new investors may wind up paying tax on profits enjoyed by longer-term shareholders. SMAs allow investors to avoid these unwanted taxes.

With SMAs, no one else is deciding when to jump in and out of your securities, a process that can trigger capital gains for mutual fund investors - or simply unwanted sales based on management needs and not necessarily yours.

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