Shadow a Manager Before You Invest

Mirroring services let you study a manager’s moves before you put your money at risk.

Abbas Haider Ali wanted to put $25,000 into the stock market. But instead of transferring the money to a mutual fund, the Washington, D.C., technology executive decided to invest with a money manager whose every move he had been tracking for three months through a firm called Covestor. Once a day, the online service shows you the stock trades of more than 130 money managers, a mix of professionals and amateurs, even if you’re not a customer. If you find a manager you’re comfortable with, you can see his or her trades in real time and mirror them in your brokerage account.

Here’s how it works: You check out a manager’s holdings, moves and perform­ance on the mirroring service’s Web site. If you like what you see, you give the service permission to execute the same trades in your brokerage account in the same proportions that the manager makes. So if the manager puts 5% of his or her portfolio in, say, Netflix, the service will buy a 5% position for you in your account. For the privilege, you pay a fee of 0.5% to 2.3% per year on the amount of money you invest with the service to follow the manager. The size of the fee, which is split between the manager and the mirroring service, usually depends on the complexity of the investing style and the popularity of the manager you choose. By comparison, the average expense ratio for diversified U.S. stock funds is 1.35% annually.

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Contributing Editor, Kiplinger's Personal Finance