Covester Review: How to Rack up some Fees

I consider myself a child of web 2.0, and so I've considered it a hobby of mine to find new and interesting ways to maximize my potential.  Well one such site called Covester seemed pretty interesting to me, and therefore warranted a more in-depth review.

From the outside, Covester is a pretty neat looking site and with an even more "neat" form of investing.  Right away, I was lured by their 1, 2, 3 step investing towards better and more rewarding portfolios.  Here's how it works:
1.) Sign up and commit a certain amount of funds towards your investing.
2.) Scan the many "portfolio managers" and how well their current portfolios are comparing to some sort of indices.
3.) Select the portfolio that suites your risk tolerance and overall investing style.
4.) Watch as your portfolio now mirrors everything that the manager does.

The concept itself is rather novel, and I applaud the site for thinking outside of the proverbial box, but there are some things an investor should be wary of.

First, who are these so called managers?  I looked through the application process, and it doesn't seem all that difficult to become one.  Granted, their performance is out in the open for everyone to see, but how do we know that their performance isn't due to luck?  Well, I guess most financial managers have some form of luck to be successful, but still, I find the lack of legitimacy rather disturbing.

Secondly, if you don't initially invest a bunch of money (say $50,000 or higher) from the start, you could be racking up some huge trading fees.  Some of the portfolio managers are day traders, and if you happen to pick one of these folks to follow, you'll be stuck paying a trading fee (or commission) everytime they do.  Imagine paying $80 - $100/day in trading fees!  Secondly, like all mutual funds, the fund managers have set up expense ratios for themselves to receive.  These portfolio fees are usually between 0.50 and 2.50% which are rather on the high end. 

Given the amount of fees, I would definitely stay away from this style of investing.  If you find yourself still intrigued by this concept, try to find a fund manager who only makes a couple trades per year. 

The real benefit to this whole trading scheme comes to those of you who would like to be a portfolio manager.  At minimum, Covester offers a no fee way of tracking your own portfolio performance.  On top of that, if you are indeed doing a good job, you could possibly earn some trading commissions from customers who choose to follow you.  This definitely seems like an interesting option!

So customers beware, and sellers be happy, because Covester may have some options for you.

Wonderful Moment of the Day: Realizing that my tomato plants are going to survive one of the worst draughts in our area ever!