What is your preference index or managed funds with higher fees and how do they work?

Having sold both index funds (Exchange Traded Funds or ETF's) and managed accounts, let me offer the following thoughts.

If your are investing in the equity markets, my first choice currently would be to carefully select an index ETF. Carefully, as all index funds are not created equally. As an example, symbols SPY and RSP are both S&P 500 index ETF's. But because of the way they are constructed, RSP has outperformed SPY by a significant margin over the pst several years. Unless you have a LOT of money, there is no way a portfolio manager can economically own all 500 S&P stocks for you in an individual account. When you take into account that, at some point in time, the SPY/RSP comparison may change, the cost of realigning your portfolio would become prohibitive. I still follow the managed account market place and most of my dealings there were prior to the advent of the ETF market as it exists today. Given what i "know" today, my recommendation is a well constructed ETF portfolio.

In the fixed income or bond markets, I would use ETF's for corporate bonds, preferred stock and Treasury securities, but if I had $100,000 or more to invest in tax exempt securities, I would use a managed account to make those purchases. Depending on your state of residency, there may not be a state specific ETF that will give you a state tax break on municipal interest. Unless you are buying bonds issued in your state or Puerto Rico or from a few other issueers, municipal interest received from out of state may be taxable for your state income tax if you have one. Also, the professional muni portfolio managers can buy and sell munis at a much better price than you will ever get as a retail investor.

Feel free to contact me if you want/need more details on this subject.