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I am new to investing. I would not characterize myself as a risk averse person. I was thinking about signing up with Ally bank for one of their managed portfolios, a Roth IRA. They offer what they call an "aggressive" account with 66% stocks, 30% cash buffer and 4% bonds. The 30% cash buffer is kept in a high interest (about 1.6%) savings account. Am I crazy or does that seem like a mildly aggressive if not rather conservative account?

If I don't want the 30% buffer I can opt out of it but at that point they charge a relatively low .3% advisory fee.

Will having 30% of my accounts assets locked up in cash be a bigger detriment to my gains over time than a .3% advisory fee?

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    Based on that allocation, it's not an aggressive account. Why would you pay someone an advisory fee to keep a large portion of your money in cash? I were were to consider giving them the benefit of the doubt, I'd ask them what their normal cash allocation has been since inception and for their reasoning behind a 30% cash allocation today. It's certainly a good deal for them to amass assets under management (AUM) and pay 1.3% (1.6% is before the advisory fee?). Feb 20 '20 at 18:44
  • @BobBaerker Either you are confused or I am. With the option that holds 30% in cash there is no advisory fee. It's not until you switch to an account with far less in cash (2%) that a .3% advisory few comes into play. The 1.6% is the interest rate your 30% in cash gets.
    – Rob
    Feb 20 '20 at 18:54
  • OK, so there's no advisory fee on the cash. So tell me you think the benefit is of having an advisor who keeps you in 1/3 cash? There are a lot of more important questions to be asking than "Is this an aggressive portfolio?". What's the minimum account size? How long have they managed money in this format? What's their track record for their managed accounts? Has their 66% stock allocation kept up with the performance of the market? Are the stocks in the 66% allocation aggressive or conservative? Do they reallocate? If so, how often? Feb 20 '20 at 19:05
  • What’re the historical returns on this portfolio?
    – Dugan
    Feb 20 '20 at 23:22
  • @BobBaerker These are I am sure great questions but they aren't questions I can answer. Except on the minimum account size. I was allowed to create an account with no cash. Had I created an account without the 30% cash holdings (2% cash holdings account) then the minimum would have been $100. Perhaps some more information can be found here: en.wikipedia.org/wiki/Ally_Financial
    – Rob
    Feb 24 '20 at 18:40
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If you read what you wrote, I think the answer is fairly clear that you don't want to sign up for the Ally deal.

I am not a financial adviser, so you can take any of the answers here with a grain of salt.

My question to you is what is the 30% buffer against? Against your potential loss? I don't exactly understand.

The central question here is what are you missing out if you deposit 30% cash with Ally.

If you characterize yourself as not "really" risk averse, then you are not just missing out the interest rate on money market account or savings account, you are missing out a potentially high return on, say, a growth stock.

Now, I suppose there would be tax benefits associated with this deal since it is a Roth IRA. You want to take this into account when you do a thought experiment with liquidating your position or Ally portfolio at the end of the day.

This reinforces my point that if you are a long-term investor, there is a better mode of investment with higher returns than depositing the most liquid form (cash), which is a third of your portfolio chunk.

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30% is a little high but gives them more flexibility to add investments strategically without having to liquidate something else (which would bring transaction costs into play).

You can certainly get better than 1.6% on average by allocating that 30% to something else, and 0.3% is not a huge fee for a managed portfolio depending on what level of management you expect, and whether that management has been proven to outperform a passive (index) portfolio.

My guess is they're using your cash in other areas than earn them more than what they're giving up in the management fee.

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