Q Up until recently my wife and I had separate financial advisers with very different approaches. We made a choice and are now working with just one, the one who merges financial planning with life planning.

One phrase that keeps coming up is ''managed portfolio." What are the pluses and minuses?


A You have good reason to be confused. The term seems to include everything from hedge funds to investment managers to diversification mavens.

Still, the basic idea behind a managed portfolio is that you hire the services of an investment professional. The pro talks to you about your goals and plans, looks at your financial resources, the demands on your cash flow, and makes a judgment about your risk tolerance. The professional designs a portfolio that works within those constraints. The typical portfolio is made up of stocks (domestic and international), bonds (government and private) and cash (money market funds). The portfolio can comprise actively managed mutual funds, index funds, individual securities and a mix of all those options. The investment manager is paid a fee, usually between 1 percent and 3 percent, and in return monitors the portfolio, buys and sells securities, keeps records and rebalances the portfolio.

The best-managed portfolios are truly well integrated into your overall finances. That's the real benchmark, not performance. But in many cases it's really an actively managed investment portfolio, with the money manager trying to best some sort of index benchmark, such as the S&P 500.

Does it make sense for you? I'm a big believer in a DIY portfolio built on a foundation of low-cost broad-based index funds. But it isn't for everyone. I would investigate what you are getting in return for the fee. In far too many cases, people are paying for an actively managed portfolio that isn't really attached to their overall household finances and lifestyle. The tactic makes more sense if the portfolio is well integrated into life goals.

What could you read? Here are some worthwhile resources for thinking about investing in a broader context. "The Random Walk Guide To Investing" by Burton Malkiel covers the basics of investing and it includes some valuable personal finance insights. I'm a huge fan of Jane Bryant Quinn and in "Smart and Simple Financial Strategies for Busy People" she keeps it smart and simple.

Chris Farrell is economics editor for "Marketplace Money." Send your questions to cfarrell@mpr.org.