How to Become a Full-Time Investor

Furthermore, money management itself takes many forms. You need to decide for whom and in what structure you will be managing money. Here are a few possibilities, each of which must be more fully explored in your business plan (see Step 1):

Trading for Your Own Account: If you do this, then you will solely be making money from generating capital gains from putting your own personal capital (via savings or other sources) totally at risk. The risk of this strategy is very high. You will "eat what you kill," but you need to be very careful. At times, you might take unnecessary risks just to "make ends meet." Alan Farley's article, "Making the Transition from Investor to Trader," provided some excellent advice for those who choose this path.

Money Management: This will require raising investment capital from other people. This is no easy feat. Clients will require performance track records, documentation and an infrastructure to manage their funds. This is a difficult hurdle to surmount for those of you who are not coming from a trading or investing career. As a result, you may have to resort to disseminating personal trading records or back-tested models. Finally, be aware that you will need to service your clients and provide periodic performance reports.

Also, you need to decide whether you will manage money in separate accounts or in a fund structure, such as a mutual fund or hedge fund. Lastly, managing other people's money will require some sort of licensing, such as an RIA (Registered Investment Advisor) or other regulatory filing. This may require registering with a state securities bureau or the Securities and Exchange Commission (SEC). Furthermore, you might have to file a prospectus or other regulatory documentation with one of those regulatory agencies.

The good news is that when you take the money management route, you will earn fees instead of relying on your own capital to feed your family. These fees are typically based on two variables:

An Asset-Based Fee: This is a percentage of the assets under management. This percentage is negotiated and varies based on the asset class and complexity of the management strategy. Typically, asset-based fees run from as low as 0.25% for fixed income accounts to 3% for some aggressive equity strategies.

A Performance Fee: This is a percentage of the profits generated by you (the manager or advisor) in your client accounts. In most instances, the performance fee is between 10 to 20%. Beware that there are securities regulations that affect the rules for charging performance fees.

As it turned out, money management was the direction that I took. LakeView Asset Management, LLC became a registered investment advisor, specializing in the management of separate accounts for high net worth individuals.

Quick Recap -- So Far

Deciding to strike out on your own in the investment business is not as simple as opening a trading account at Charles Schwab(SCHW Quote) and then going to work. Before making the final decision to switch from your current career to working as a full-time money manager, you need to carefully plan your transition and consider the implications of your new life.

I suggest that you begin by preparing a business plan and discussing the plan with family, friends and consultants. Conslutants may include career consultants, business consultants, peers in the business, lawyers and accountants.

I began to plan LakeView Asset Management a few weeks after the events of September 11, 2001 and launched the business in the spring of 2002. I spent those months developing my business plan, speaking to others who had started similar businesses, working with consultants and managing my wife and family through the process.

Step 4. Raise Capital: When starting (and running) an investment business, capital commitment is critical. Raising capital is no easy task. That said, with your business plan as a starting point (see Step 1), here are three ways in which to source the needed capital:

Use your own investments or those of your family.

Raise money from third parties on your own. This requires marketing skills that you may or may not possess.