Should You Manage Your Own Investment Portfolio?

According to a 2012 Investopedia article1, the market share of online brokers increased by three percentage points while the market share of other retail brokerages lost four percentage points. This apparent uptick in the number of Do-It-Yourself investors can be attributed in part to the relatively easy access that the public now has to the same or similar information relied on by financial professionals. Plummets in values of professionally managed portfolios over the past few years have also led some investors down the path of self management, apparently with the attitude that they couldn’t do any worse than their brokers.

Many decide to go with a discount broker in order to save fees. The tradeoff for lower fees is that no personalized investment advice is offered since the role of the firm is to execute trades. While risk assessment tools, a myriad of calculators and research findings are offered by most of the rated discount brokers, the individual investor is responsible for weighing options on their own regarding issues such as asset allocation, choice of funds and post retirement draw-down amounts. The investor must also rigorously monitor his or her own progress and make strategic adjustments where appropriate.

Those determined to invest on their own must first conduct a thorough study of the discipline of financial planning in order to gain a complete understanding of relevant concepts. Knowledge of what drives financial markets and the ability to interpret trends and analyze financial statements are among the preliminary prerequisites to beginning a successful DIY investment strategy.

SmartMoney annually ranks discount brokers. The 2012 Broker Rankings can be found at Factors included the firm’s range of investment products and research tools, speed and reliability of websites, customer service and fees. Top ranking Fidelity is described as “Offer(ing) the biggest selection of funds and the most comprehensive website” while tenth ranking Wells Trade was criticized because “Online trades were slow to execute. Got low marks for its website, trading tools and research offerings”.* The survey found the average price of a stock trade through a discount broker to be $7.96 compared with $8.27 the previous year.

I personally managed my own portfolio until approximately 15 years ago when I switched to professional management. Shortly thereafter, the market tanked and I was thrilled that someone with the requisite expertise knew how to do minimize losses through a difficult period. Ever since, I have relied on a financial advisor to manage my hard earned dollars.

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