[Estimated reading time: 4 minutes, 6 seconds]
I read a comment on Andrew Hallam’s website yesterday that got me thinking.
The commenter wanted to become a DIY investor because he thought it would be cheaper.
But he’d forgotten a simple fact…
DIY investors… under perform.
Being CEO of a professional adviser, you’d expect me to say just that.
But low cost investment giants like Vanguard agree.
Independent financial expert DALBAR’s annual analysis of investor behaviour shows that the average DIY investor under performed the S&P500 by 4.2% per year for the last 20 years.
My experience is that expats do a lot worse!
There are 5 reasons why DIY investors’ returns fall short…here’s how to avoid making their mistakes:
1. Emotions like ‘fear’ and ‘greed’ drive DIY investor behaviour.
When Markets dive, it's natural to want to get out quick.
When they’re rising fast, it’s normal to want to ride that wave.
But that means buying high and selling low…the exact opposite of a good investment management strategy…and it’s exactly what most DIY investors do.
One study that looked at how different investing styles would have fared over any 20-year period to 2012, found that the best strategy was to invest your cash as soon as it's available, and then hold what you purchased for the long-term.
That’s precisely what DIY investors fail to do time and time again.
Any Chartered Financial Planner, who can protect you from your own emotions, will more than cover their annual fee via the higher returns you’ll get from staying invested.
2. It’s hard to remain constantly motivated.
I’m self-motivated - but when it comes to fitness I work out harder and stick to a fitness plan more consistently if I hire a coach to train me, or sign up to a course of classes…otherwise any number of distractions weaken my motivation.
This inability to be relentlessly, tirelessly committed to a plan crosses over to most people’s finances.
As my colleague, Chartered Financial Planner Stuart Ritchie explains:
"I help clients make better decisions about their wealth – and I encourage them to get things done.
“I’m persistent, patient and at times a psychologist!
“But I get results my clients are delighted with. I've yet to see an app or a DIY investment platform that offers any of these literally value added services!”
Choose someone who won't consume your money with hidden commissions, who won’t make decisions in their own best interests to the detriment of yours, and who won’t charge excessive fees.
Here’s How to choose a financial adviser…
3. How much do you know about costs and taxes?
Are you an international tax expert?
Have you any idea how much expense ratios and trading commissions are costing you?
Do you know the difference between accumulation and distribution share classes?
Do you know how to invest strategically to cut costs and taxes?
A decent fee-based financial adviser will handle all that for you – and more…
And what they save you in taxes and excessive fees will more than cover their annual fee.
My colleague Stuart saved Kristian 5.73% in fees on just one of his investments…this meant Kristian got great results for the first time in years..
Find out if he could do the same for you with one of these.
4. Balance and diversification
Everyone knows diversification is critical when investing…but did you know that your age and risk tolerance should also influence how you diversify?
How often do you rebalance?
Have you factored in the holdings of other people in your household too, and how these affect your overall investment mix as a family?
You need to look at the combined investments in all accounts – and know that if your allocation is off, you'll either be taking more risk than you're comfortable with or earning less than you could be.
Paying for professional financial management is a great investment – because it means pacing the market instead of underperforming it.
Stuart’s advice helped Elaine adjust her portfolio appropriately – and thereafter its performance increased by 32.82% in just 1 year…
5. Time is not on your side…
Have you got a job – or plenty to keep you busy if you’re retired?
Perhaps you have family as well, who demand your time and with whom you like to spend time?
For Stuart and his team of wealth professionals, looking after your money is their profession, their passion and their full-time job…
Which is why their clients don’t underperform the market, waste money on commissions and taxes, remain balanced, diversified and in the market for the long-term.
And it’s probably why clients like Martin cut his costs and increased his returns by 29.32% in just one year.
If you don’t want to underperform, don’t DIY.
If you want better results, and the peace of mind and security that goes with choosing a professional, make sure you deal with a Chartered Financial Planning company.
You can find a list of them here.
And if you want to see if we can cut your fees and increase your portfolio’s performance, get a full diagnostic analysis of your holdings with an X-Ray Review™.
