Over the years, the concept of “Do It Yourself” (DIY) has come a long way. As access to information grows, more and more people are taking DIY into consideration for everything from home improvement projects to doing taxes – almost anything that could potentially be done on your own with the proper tools and knowledge. Now, with the power of the internet, the decision to DIY can also apply to a task as complex as building a portfolio with your hard-earned money. Should you do it yourself or turn to a financial professional? Only you can answer that question, but here’s some food for thought.
Using a Pro
This is a decision that cannot be made lightly. If you prefer the assistance of a professional, then it’s important to choose that professional very carefully. After all, it’s your money. Act like it. Check out the track record and performance of the professional you choose. Educate yourself about investing even if you are entrusting someone else to do it for you. Just because you are using the services of a professional, you should never feel that you don’t need to take the time to learn. Otherwise, how will you understand what the professional is recommending? Ultimately, you are responsible for what that professional does or doesn’t do with your money. If you don’t understand the markets then how can you truly participate in the decisions or intelligently question your advisor’s recommendations?
Finding a professional that you are comfortable with goes a long way in establishing a confidence level between you and your advisor. As you begin your search, you’ll find there are all kinds of financial professionals with over 20 designations and certifications that identify various levels of specialty and knowledge. Each designation has set requirements on criteria such as years of experience, educational background and level of knowledge, etc. Your search criteria should include level of experience, areas of specialization, registrations and certifications, customer service skills, the professional licenses and designations, and how they are paid. Yes, how they earn their money is actually a critical aspect.
Financial professionals charge in a variety of ways. Advisor fees can be based on an hourly rate, commission, or even a simple flat fee. Then there are those who charge using a combination of these methods. Why is this so important? How they are paid can affect the recommendations they make to you since they may stand to make more money with one investment choice over another. It’s important that you keep that in mind as your advisor makes investment recommendations to you. Always scrutinize every investment recommendation just as zealously as you would question a contractor working on your house or a mechanic on your car. Remember, you aren’t the only one who wants to maximize income!
There are a lot of good, very competent financial professionals out there and for those who prefer to use their services, it’s important to do the due diligence in selecting one. Unfortunately, like with everything else in life, not all advisors are created equal, so it is your responsibility to make sure that your employ a good one. One way to verify if your advisor is in good standing and properly registered is to check with the SEC (Securities Exchange Commission), FINRA (Financial Industry Regulatory Authority), and/or appropriate regulatory agencies in your state. You’ll find a range of information including whether or not the advisor has had any disciplinary action or complaints filed with these organizations.
Once you have chosen the professional you want to use, it doesn’t mean you can sit back because someone else is managing your portfolio. If you had a contractor in your home installing tile throughout your house, wouldn’t you check on the quality of their work and the progress they were making? Whether it is tile in your home or assets in your retirement portfolio take charge and look out for your money just the same.
Do It Yourself
The flip side of the coin is choosing to take complete control of your investments and doing it yourself. Although it is an empowering decision, you must have the time to learn and to research various investments in detail. The good news is that no one will make your investments a greater priority than you will. But investing successfully yourself can’t happen overnight. It takes time, commitment and confidence.
It is important to start with some basics. Set your time horizon, risk tolerance and your investment goals. Are you 25 years from retirement or 5? That will require completely different strategies and levels of acceptable risk. These are all exercises that you would have to go through with a professional as well. Lay the groundwork first and then develop your investment strategy.
The risks of investing on your own are obvious and if you don’t take it seriously, you will certainly increase your chances of losing your money. Sure, you can lose money with a professional as well, but when you do it yourself, the only one you can blame is yourself. Clearly there is a learning curve, but thanks to the abundance of information on the internet as well access to tools such as virtual stock simulators, you can practice before opening a real account. That way, the majority of the learning curve can take place long before you ever invest a dime.
When it comes to the time required to properly manage your portfolio, you dedicate a regular block of time to analyze and monitor your portfolio in detail. Does it need rebalancing in order to remain diversified? How is each stock doing? What is the latest news on each company and industry you are invested in? What economic news could affect your portfolio? What’s your plan of action if a stock runs into trouble? Does that mean sitting in front of the computer every single night? – Of course not. However, in a volatile market or unstable economic conditions, more frequently is better than less. Be pro-active, not reactive. Monitor what is happening in the market and with your stocks and have a plan.
To succeed in investing for yourself, you need to understand how to effectively assess the risk of a particular investment. To do so, you must learn the basic concepts of the market, how to objectively analyze a stock or a fund and how to measure and track the performance of your portfolio. This takes time and effort. If you can commit to both, then you have the potential to do well.
Another important element, particularly when you are investing is to avoid emotional decisions. While that may be easier said than done, it is crucial to succeeding. On many occasions, you will be faced with having to make business-like decisions that are critical to minimize losses and/or reaping gains. Stay objective and focused on your goals. These difficult decisions actually become easier as times goes on and as your confidence begins to grow.
Many of the most successful investors are doing it themselves. There are also investors who give a portion of their portfolio to a professional and also manage some investments themselves. It has been proven that professionals do not always do better than the market averages. In fact, if you examine many mutual funds, you’ll find that most of them underperform those averages. These are funds managed by professionals. So don’t ever assume that because they have a designation or certification next to their name that they will do a better job than you can for yourself.
On your own or with a pro, it is critical that you learn all you can about the investing world. That knowledge is power and that power can translate to a strong portfolio if you are prepared to fully participate. With or without a professional, you must play an informed and responsible role in the investment of your money. Whether it is laying tile on the foundation of your home or building a portfolio as the foundation for your retirement, you are in control of your success.
What does it mean to you? Everyone is different. Some investors feel empowered by doing it on their own and often do quite well.
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