Taking full responsibility for your finances, including any investments, is both daunting but highly recommended. After all, no one should (and does) care as much about your money as you do.
Here are three more reasons why I think the do-it-yourself approach should appeal to many Foolish readers.
Reason 1: Investing doesn’t need to be difficult
The financial services industry would have people believe that investing and the stock market are far more complicated than they actually are. Throw in some scary-sounding jargon and impressive charts and it’s easy to see why those hesitant to handle their own money and low on time are throwing it in the direction of the professionals.
In reality, investing is one of the few pursuits in life that almost anyone can become successful at. Far more important than academic qualifications, or decades of experience in the City, is a willingness to take calculated risks and the ability to remain calm when everyone else around are losing their heads.
Nor does profitable investing necessarily require countless hours of research. If you’d rather not analyse individual stocks, just direct your money into passive vehicles such as index trackers and exchange-traded funds. Since they follow the market, you’ll never outperform, but you’ll never under-perform either. You’ll also only need to check your portfolio once or twice a year.
Reason 2: Save on fees
Cutting costs as much as you possibly can ensures that more of your money is put towards compounding your wealth rather than lining the pockets of the aforementioned fund managers and financial advisers. It’s arguably one of the key principles of successful investing that isn’t mentioned often enough.
Why pay a professional 0.7% or so a year to pick what she/he considers to be the best large-cap income stocks when you can do something similar with a passive fund for far less, while still generating a reliable dividend stream? Even if the former outperforms the latter, the higher fees eat into this better return. It’s also worth mentioning that very few professional investors are able to beat the market consistently over the long term.Â
Reason 3: Freedom
Taking control of your finances means that there’s no one else to blame when things go wrong. The flip side is that it provides you with enormous freedom to invest in whatever you want.
The professionals should be so lucky. If a manager is charged with finding value, she/he can’t simply sell their holdings and invest in high-growth companies, even if they suspect that this might generate the best returns over the next few years or so. You have that power.Â
As a private investor, you’re at liberty to invest based on your attitude to risk and time horizon. If you’d rather operate a fairly concentrated portfolio consisting of 15-20 high-quality stocks, so be it.
Your principles are also relevant. If you’d rather not buy ‘sin’ stocks (e.g. gambling and tobacco firms), you don’t need to. This would be one example of when index trackers should be avoided since they buy a little of everything.
Regardless of what you do, a final advantage worth noting is that you are able to be nimble in a market where fund managers can only ever buy in bulk. That can also be a huge bonus if you want/need to exit positions quickly.