Managing Your Own Investments: Is It Worth It?

Managing your own investments can be a challenging but rewarding task. It requires a good understanding of financial concepts such as asset allocation, risk tolerance, and diversification. While it can be intimidating for beginners, there are many resources available, such as books, online courses, and financial advisors, to help you make informed decisions. It's important to remember that investing carries risks and it's easier to lose money than to make it. Therefore, it's crucial to do your research and due diligence before making any investment decisions. By managing your own investments, you can save money on fees and have full control over your financial decisions. However, it's also important to acknowledge that investing is complex and time-consuming, and seeking professional help when needed is always a good idea.

DIY investment management

A portfolio is a collection of your investment assets—your 401(k), IRA, and brokerage accounts. Portfolio management involves allocating and executing an investing strategy based on your timeline, financial goals, and tolerance for risk.

When to DIY

If you have a moderate-sized portfolio and a decent grasp of basic investment principles, you may want to manage your investments yourself. DIY investment management is a good option if you want to keep financial management costs low, as it will only involve the underlying costs of your investment trading, Exchange-Traded Fund (ETF), and mutual fund fees.

When to get help

If your financial situation is complicated, it may be a good idea to enlist the help of a professional. For example, if you have inherited several accounts that include investments in businesses in another country or in cryptocurrencies, it may be worth seeking advice.

What you need to know

Before you start managing your investments, it's important to understand modern portfolio theory and gain an understanding of how asset allocation is determined for an individual based on their circumstances. You should also be aware of the potential pitfalls of DIY investment management. For example, inexperienced investors often buy high and sell low, which can lead to losses in short-term trades.

How to get started

To get started with DIY investment management, you'll need to learn a few simple investing principles, find a portfolio that meets your needs, open a brokerage account, purchase the necessary index funds, and rebalance once a year.

Tips for success

To increase your potential returns, continue learning about investment portfolio management practices. No matter which option you choose, the more you understand, the more you will benefit.

Free financial advice

If you're looking for free financial advice, there are a few options to consider:

• DIY Investment Management: If you have a good grasp of basic investment principles and a moderate-sized portfolio, you may want to manage your investments yourself. This approach involves understanding concepts like asset allocation and rebalancing, as well as keeping track of transactions for tax reporting. It also requires monitoring your investments regularly and making adjustments as needed. The financial management costs are simply the underlying costs of investment trading, ETF and mutual fund fees. However, just because the fees are low doesn't mean you'll come out on top.
• Discount Brokers: If you prefer some guidance but don't want to hire a Certified Financial Planner, you can consult financial advisors at discount brokers like Schwab, TD Ameritrade, or Fidelity. These advisors can provide basic finance and investment knowledge, answer rudimentary questions at no charge, and suggest low-fee index funds. They can also help you roll over your 401(k) into an IRA if needed.
• Free Resources: There are many free resources available to learn about investing, such as books from your local library, free classes led by financial professionals, and websites offering comprehensive lessons on investment terms and strategies. Additionally, online communities like StockTwits allow investors and traders to exchange information in real time.

While seeking free financial advice can be a good starting point, it's important to remember that everyone's financial situation is unique. For more complex situations or comprehensive financial planning, consider consulting a licensed financial expert or advisor. They can provide tailored advice and strategies to help you achieve your financial goals.

Fee-only financial planners with limited visits

Fee-only financial planners are paid directly by their clients for their services and do not receive commissions or other payments from financial product providers. They are legally and ethically bound to act in their clients' best interests at all times. This model offers transparency and helps foster long-term, client-focused relationships.

However, there are some potential disadvantages to this model. Fee-only advisors do not have direct access to commission-based products such as insurance or annuities, which can inconvenience clients. The assets-under-management fee structure can also make it less profitable for fee-only advisors to serve small accounts.

If you opt for a fee-only financial planner with limited visits, you will benefit from a transparent fee structure and the peace of mind that comes with knowing your advisor is legally bound to act in your best interests. However, you may need to seek additional professionals for certain services, such as insurance or annuity products.

• Understand their fee structure: Ask about their fees and how they are compensated. Are they charged as a flat fee, hourly rate, or a percentage of assets under management? This will help you anticipate the costs involved.
• Be clear about your goals: Before meeting with your advisor, take time to define your financial goals and priorities. This will help you maximise the limited visits and ensure your advisor can provide tailored advice.
• Ask about their investment approach: Inquire about their typical investment strategies and whether they offer a customised approach. Understand their risk management strategies and how they plan to help you achieve your financial objectives.
• Discuss the scope of services: Clarify the services included in the limited visits. If you require additional services, ask about the possibility of extending the engagement or seeking external specialists for specific needs.
• Review and rebalance your portfolio periodically: Even with limited visits, it is important to review your portfolio regularly and make adjustments as needed. Discuss with your advisor how often they recommend reviewing and rebalancing your investments to ensure they remain aligned with your goals and risk tolerance.

Remember, fee-only financial planners with limited visits can provide valuable guidance, but you may need to engage additional specialists for certain financial products or services.

Money managers

The initial set-up with a money manager can be cumbersome, as you will need to allow them access to your accounts. There may also be tax consequences if their plan involves selling some of your assets and replacing them with new ones.

While money managers can provide valuable expertise and save you time, it is important to remember that you don't have to hand over all financial decisions to them. You can still stay involved and make decisions about your financial goals and risk tolerance. Additionally, you can seek advice from other sources, such as financial advisors at discount brokers, who can provide basic investment knowledge and answer simple questions without charge.

Ultimately, the decision to hire a money manager depends on your financial situation, goals, and comfort level with managing your own investments.

Robo-advisers

There are many robo-adviser platforms to choose from, including:

• Betterment: One of the pioneers of robo-advising, Betterment offers a competitive annual fee of 0.25% of your balance, with no minimum balance requirement.
• SoFi Automated Investing: SoFi offers a basic robo-adviser service with no annual advisory fee and access to real-life professionals.
• Vanguard Digital Advisor: With a low annual net advisory fee of no more than 0.20% of your managed account balance, Vanguard is an excellent option for those just starting their careers.
• Wealthfront: Wealthfront offers sophisticated saving and investing tools with relatively low fees and powerful financial planning tools.
• Fidelity Go: Fidelity's robo-adviser platform offers free management on balances below $25,000, integration with other Fidelity accounts, and uses mutual funds with no expense ratios.

When choosing a robo-adviser, it is important to consider factors such as fees, investment options, account types, and access to human advisors.

Frequently asked questions