Investment Advice or Do It Yourself?

The stock market has been booming these past ten years.  Many investors have become dissatisfied with their investment advisors who sell a pre-determined model of products, don’t keep in contact, give abysmal service, not to mention charging dearly for poor returns. 

Investors are deciding they can do a better job themselves. 

Do you have the skills to manage your own money?

Investment advisor or DIY?

A do-it-yourself portfolio

Many investors like the “do-it-yourself” approach for one or more of the following reasons:

  1. To save money on fees
  2. They think they can do a better job than their advisor
  3. They enjoy the process

There are several ways you can build your own portfolio. 

A low-cost “couch potato” strategy, or the newer “all-in one” portfolios, are simple to set up and not complicated to manage, especially for those just making the switch from a portfolio manager.  Can you stick with it?  It becomes tempting to tweak the fund allocations from time to time, adding a bit of this new fund and a bit of that.   A good plan doesn’t need to be complicated or overly time consuming to be effective.

To build a portfolio of individual stocks you need to take the time to do your research.  There’s the risk of lack of diversification or buying “hot” investment products or the latest fad.   It can be hard to find the right mix and overeager investors may take on too much risk in their search for higher yields.

Do you have the discipline to stay the course over the long term?

Related:  Investment Strategy in Retirement

Some financial planners will do a portfolio evaluation and point you in the right direction by giving you tips to improve your strategy.  It might be worth your while to pay a one-time fee for this service.

Challenges DIY investors can face

Perhaps DIY investing was a lot of fun in the beginning.  But since then life has taken over.  It’s hard work to find the right investments and make good decisions consistent with your future goals and at a comfortable risk level.  It’s tough to remain disciplined with your own finances.

Have you ended up with a hodgepodge of products that sounded (and maybe were) good at the time, but don’t make overall sense now?  Do you need to do some rebalancing?  Do you know how to measure your performance?

Procrastination can quickly become the simplest and most likely course of action.

You will make mistakes and may face challenges such as these:

  • Thinking you’re an expert.  Maybe the balances on your investments started to soar.  You were proud of the great job you were doing.  But just because you watch BNN and subscribe to Money Magazine, it doesn’t make you an expert.
  • Following trends and fashions.  Different styles of investing became popular depending on what the stock market was doing.  When interest rates dropped, mutual funds became popular.  Then buying dividend paying stocks became the rage and now ETFs. 

Often when following the latest trends, people tend to invest aimlessly and try to time the market.  The result is a mishmash of investments that are not consistent with a well thought out strategy.  Decide on the strategy that fits you best. 

  • Becoming too emotional.  We know the exuberant high we get with the thrill of victory when a hot stock tip pans out (at least initially), and the despair when we experience the agony of defeat as our investment plummets. 

We also become emotionally attached to our purchases.  We have a hard time selling losers, but what about our attachment to stocks purchased 5 – or even 25 – years ago?  It makes us feel good to see that they’ve doubled or tripled in price, and look at the dividends we’re raking in.  What a great job we’ve done!  Or, your investments start plummeting and you become afraid of losing everything, so you sell it all.

  • Failing to address changing situations.  Our long-term strategy needs to change when our life circumstances change. 

We also need to address any changes in a company that we have invested in – buy-outs, delisting, stock buy-backs.  How will they affect us? 

Is it better to pay for investment advice?

Portfolio (Wealth) Managers and Investment Advisors are paid primarily by an agreed upon fixed percentage of the assets they manage.  They are paid directly by you and may or may not also receive commissions from the products they sell and other transactions.

An Investment Advisor gives advice and suggestions, but you ultimately make the buy or sell decisions.  A Portfolio Manager on the other hand has discretionary authority over your account and can trade without consulting you first.

These services can be costly, and often require a stated minimum investment portfolio.  But it could be just the ticket for those who want solid advice, peace of mind, and good results without being directly involved in the trading and management of their investments.

Some financial planning services may be offered as well.

Make sure you’re not paying for services you don’t need or are not actually receiving.

The bottom line

There’s no such thing as a perfect portfolio or investment strategy. No investor is right all the time.

However, you can be a successful do-it-yourself investor if you keep your strategy focused and consistent and continue to learn.

Canadian investors hate to pay fees.  It’s easy to reduce costs, but all fees are not equal.  If you are only occupied with reducing fees you could make other pricey mistakes.  Then you’ll be wondering why you’re not as financially successful as you would like to be.

If I want to develop my basement, I could buy a manual or watch a YouTube video to find out how to do the electrical work myself.  Or, I could hire an electrician to do the work for me.  For a higher initial cost, I could avoid potential future problems that might be disastrous.

Similarly, paying for investment advice may be more effective and less costly in the long run.

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