It’s Not Monopoly Money

Play money. Otherwise known as a personal trading account. Even the sound reminds you of the game Monopoly. Unfortunately for me, it has a negative sound.

A lot of clients want to have their cake and eat it too.

They hire a financial advisor to manage most of their investments because they like or trust this individual. But on the side they keep their “play money”, a brokerage account that they use to do their own trading.

These accounts are used for a variety of financial purposes. Sometimes a specific goal, like retirement or college. In my experience, clients having these accounts use them for the “thrill” they experience while investing.

Play money accounts are more common during a bull market when it’s hard to not make money. One of my primary concerns with these accounts is that the client almost always takes riskier bets than the advisor. Making it easy to beat the advisor’s performance, without comparing apples to apples.

I do not mind a client having a play money account. However, if you have one there are a few rules you should follow.

Make sure your financial advisor knows about the “play money” account. In fact, include the account in all the planning the advisor does. That way, he can stay up to date on the value and its progress.

Limit the size of the “play money” account. This account should not be very large. It’s easy to make mistakes investing, and I’ve seen clients make plenty of them. Keep this account at a small percentage of the overall portfolio. Trust the larger portion of your investments to a qualified financial advisor.

Do some homework. Don’t just listen to CNBC or your brother-in-law’s hot tips. Actually do a little research like a financial advisor. You may come to the realization that this stuff is harder than it looks.

Consider keeping those accounts in-house. If you absolutely feel the need to have a “play money” account, consider having it in a brokerage account with your current financial advisor. That way if something goes wrong or you need a little help, you have a safety net.

Have you been using your investments like “play money”? If so, and you’d like some guidance write me at david@lexwealth.com, or call me at (859) 225-2596.