Covestor Review

Do you trade your own portfolio, or do you wish you could hire someone to trade your portfolio for you? Covestor is a new web based trading site that allows you to either trade your portfolio to earn money, or to mirror the trading style of a manager you choose. Covestor brings together portfolio managers of all types, and investors who are looking to seek further diversification, or in some cases excess returns.

Covestor for the Portfolio Manager

If you have experience in portfolio management and would like to pick up some extra fees, Covestor could be a possible low cost option for you. There are two types of people who can gain access to fees through Covestor. The first is any individual who has a passion for trading stocks, or has a great investment process.

You can register with Covestor even if you are not a Registered Financial Advisor (RIA) and earn fees for trading your portfolio. However, without the title of (RIA), you must go through a trial period with Covestor to certify that your trading strategy has potential, and can follow the set of guidelines. You will be given a set fee for anyone who signs up to mirror your trading, which also allows you to leverage your own investment with the money of others wishing to mirror your trading patterns.

The second option for someone who would like to register with Covestor is a Registered Investment Advisor. When you are an (RIA), and sign up with Covestor, you will be able to earn 50% of the total management fees. This allows the general public to have access to your trading strategies without the overhead of marketing expenses, or distribution expenses. If you are a new (RIA) and would like the general public to have exposure to your trading technique, Covestor could be a great start for you.

Covestor for the Investor

If you have never traded a stock in your life, Covestor makes the process easy enough for anyone to understand. There are some minimum requirements however before you can have access to mirroring Covestor managers. You will need to have at least $10,000 dollars to invest in Covestor accounts, or in some cases up to $30,000 if you plan to invest with a manager who trades on margin. Trading on margin simply means that the manager will either short sell a stock, or borrow money to leverage his trades. Leverage is the term used for amplifying your gain or losses through borrowing. Essentially, what Covestor does is allow you to sign up with the minimum requirements above, pick your risk appetite and style of management you would like to mirror, and then put your money into the manager’s account. Your account will then reflect the same trades the professional manager is making on a day to day basis without any more effort on your part.

Covestor allows you to put restrictions on your account; which allows you to put your money with a manger that trades within your comfort zone. The scale ranges from a risk of 1 thru 5 with 5 being the most risky type of manager. If you are a risk score 1, it means you would like for your money to make small gains, but could not tolerate a large loss. If you are a risk level of 5, it means you are willing to let the manager take large amounts of risk with the possibility of a relatively larger return. All of the different risk factors trade a variety of ETF’s and all U.S equities. An ETF stands for exchange traded fund, which is a basket of securities that all follow a certain type of strategy. For example, they could all be information technology stocks, or they could all be constituents of an index. A risk score of 3 or above gives the manager the freedom to either trade on margin, or to short sell a stock. A risk score of 5 should only be used if you are not relying on the money you give the manager. This is not to say the manager will lose your money, rather the volatility of your account will be higher than that of a risk level 1 portfolio. The manager will most likely trade very actively which would impose higher transaction fees on you, as well as may be non-diversified so that a certain segment of business would be responsible for all of your profits or losses.

Fees for Investing

The process to pick your style is easy and Covestor provides good explanations of the different risk factors involved. When you open and account you will have fees generated from three different areas. You will be charged a fee in the range of .5% to 2.3% per account per subscription to a model. The second fee is a $12.50 fee per subscription per month. The final fee is $1 per trade with the brokerage firm. After all of the fees are added up, you would be charged out of your account approximately $40-$80 a month in fees depending on how often you change the manager you are mirroring, and how much money you invest with Covestor. Covestor will explain all of the fees to you before you subscribe with any manager to keep the transparency very high with their clients.

Covestor Review

Covestor Navigation Tab

Transparency is the main goal of Covestor, and you will arguably receive more transparency with Covestor than with your average investment manager. If you mirror the account of one of Covestor’s managers, you will be able to see all the stocks the manager buys and sells on a daily basis, as well as have up to date return information. There are lots of different types of managers on Covestor utilizing a variety of different trading techniques. I would recommend you do a little research on the different strategies available, but you know that you are safe based off of the risk score you have chosen to invest in. The process is simple; first you go to the Covestor web site at www.covestor.com. Then you sign up for an account which is run through a normal broker so your money is safe and secure. Then click on the Model Search Tab shown below, and pick the risk and strategy type.

The risk and strategy boxes can be found on the left side of your screen after you have clicked on the Model Search tab. They will look like this…

Covestor ReviewThe other option you will have the ability to filter your Model search with is a financial term called a sharpe ratio. A sharpe ratio simply defined is a reward per unit of risk calculation. A higher sharpe ratio means that you would like a higher return with a relative amount of risk. The calculation of the sharpe ratio is to take the portfolio or model return, subtract out the risk free rate (typically a U.S treasury bill or bond), then divide this number by the standard deviation of the portfolios performance.Covestor Review

This is jargon for the financial professional, so Covestor makes it easy for you to pick what you would likeCovestor Review your sharpe ratio to be. The final aspect you will be able to filter your search off is the minimum investment. Some managers require a higher minimum investment than others. This could be because they trade on margin, or their strategy dictates a higher amount of capital to trade efficiently. Finally, once you have filtered all of the different models, it’s as simple as buying something on an internet store. You scroll through the different models where there is information given about the manger, the historical performance, as well as how the manager picks and sells stocks. You will also find here a general description box that will have all the general information about the portfolio/model manager.

Conclusion

Whether you are a great portfolio manager who is looking to pick up some extra fees, an intelligent investor who does not have the time to invest his/her own money, or have no experience investing but would like easy access to great managers, Covestor could be the place for you. They offer a free 90 day trial when you first sign up so that you can see if you like the process before you have to pay fees. Covestor could be that diversification you have been looking for, or a great spot to invest if you don’t have the time or knowledge to do it on your own.

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