Investing should be simple. Well, at least that’s what I believe, but I am a financial adviser…so it should probably feel that way to me, I guess? I have spoken to many people who haven’t made their way into the investment world, yet, but know that they should and want to get started. However, they all say the same thing: I just don’t know how to get started. So, let’s see how getting going may be easier than you think!
DIY Investing
Going alone? You absolutely can! But jumping into something headfirst and blind is never a good idea; being unprepared when pouring your precious funds into investments is a great way to end up losing out big, and that can wreak havoc to your financial well-being and state of mind.
If you want to do it yourself, you must take the time to research. Your own financial situation is unique to you, and one method for someone else won’t be appropriate with yours. Look at your needs versus desires and focus on what’s important first: more often than not, you should be focusing on generating long-term wealth for your retirement, not chasing quick, high-reward returns that are often plastered all over the internet. It may feel like an age away, but the sooner you start, the better.
Don’t get swept up by massive returns, but don’t be afraid to chase solid percentages with the right strategy. Think about the often measly returns your local bank provides you — generally, you want to beat the bank at least! Let’s take the average stock return over the last century, which has been about 10%; that can be a great benchmark to aim for from your own investment portfolio. Remember, that’s the average annual return, whereas you might get higher and lower figures in and amongst the years. Warren Buffet’s team themselves made an annual average return of 20% from 1965, and arguably they should be amongst the best in the game. If you’re hitting above 10% for your long-term wealth, you ain’t doing too bad, kid!
Your first step would be to research an appropriate investment platform you can access, do some portfolio research and strategising appropriate to your goals, and then finally getting your money to work in their investments. Keep in mind that your returns are dynamic and can be volatile, and most investors who DIY lose out on returns by cashing out too early and trying to time the market, rather than simply holding on.
Have a read through these articles on The Psychology of Money and Avoiding Emotional Investing before deciding if the DIY approach is for you. You can also look at investing in funds versus stock, putting your faith in a fund manager’s strategy whilst still controlling what areas you invest in.
If you struggle with your emotions when it comes to investing, don’t have the time to manage your investments, or simply want assistance, have a look at…
Robo-Advisory
Robo-Advisors use tech to manage investments on your behalf and can offer one way into the investment sphere without having to do it alone. Competing with traditional human advisers, they can be a way to reduce fees and use fundamental data analysis to attempt to generate returns, versus us mere mortals.
There are quite a few options out there now and, just as before, doing your own research to find one that aligns with your desires is important. Most Robo-Advisors, at the end of the day, are an algorithm that you put your faith in, rather than having true control or flexibility on where or how your money is invested.
What Is a Robo-Advisor?
Robo-advisors (also spelled robo-adviser or roboadvisor) are digital platforms that provide automated, algorithm-driven financial planning services with little to no human supervision. A typical robo-advisor collects information from clients about their financial situation and future goals through an online survey and then uses the data to offer advice and automatically invest client assets. (Investopedia)
Robo-Advisory shines when it comes to automation, ease-of-use and simple investing, often implementing passive strategies that don’t aim to handle complex situations, just straightforward management of your medium- to long-term goals. That said, after over a decade of being around, they are beginning to now handle more holistic services that a traditional financial advisor may have typically been brought in to handle in the past.
There are many pros to this digital solution that definitely can’t be ignored; they have certainly opened up investing to the “average investor” wanting to get started, but not being able to afford a financial advisor just yet. The strategies they offer are, more often than not, all someone may need to get started with a portfolio, but generally don’t offer you the full flexibility of picking exactly the type of investments you want.
One area you will lose in this style of investing is a lack of empathy and human interaction. For some, a human touch is more understandable; a person can relate to sensitive situations and build trust with their clients — sometimes you just simply want a human face managing your wealth or need access to other products a Robo-Advisory cannot offer, and notably, as your situation gets more complex. Furthermore, you are in control of cashing out your portfolio when you are fearful, whereas an adviser can help you keep that money invested when things get through, as history shows are best to do so.
Desire the human touch? Then, you might want to look at enlisting the help of a…
Financial Adviser
You might also see the term wealth manager, investment advisor or financial planner (and more…), though they all operate in the financial world depending on what you need as a client. Generally, financial advisers are able to offer an all-encompassing service that can help manage many financial aspects of your life or at least point you in the right direction.
Advisers are (mostly!) fully qualified, regulated and offer a range of services for all types of clients, though it is true that some may only be accessible to those with larger amounts of wealth. However, you may find that an independent financial adviser is more flexible in who they can bring on. At the end of the day, advisers are providing a service, and no one does it for free! Have a look here at the types of cost you can expect with advisory services.
Advisers often help out in more “specific” areas, beyond investment management, such as:
- Retirement Planning
- Tax Planning
- Estate Planning
- Trusts
- Education Planning
- Life Insurance
- International Banking
- Property
- Offshore Investments
- Will Planning
Advisers often manage these different areas together for an all-around “complex” situation, over a Robo-Advisory which may only handle investment management. This is, arguably, where the adviser earns their higher fee — the holistic planning, emotional support, varied expertise on offer must all be accounted for versus a digital solution offering a more limited scope.
Interestingly enough, at the start of the coronavirus panic around March 2020, many people turned to advisors to help them ride the anticipated storm that was coming. What this suggests is an inherent desire to turn to help when we want it, and not everyone has the same trust in tech as a human…maybe not just yet!
During the beginning of the coronavirus pandemic in March of 2020, for instance, client demand for financial advisor contact increased by almost 50%.
“I think that during these times, we can be a source of reason,” says Blackwell. “We can weather the storm. We’ve built this portfolio for a reason.”
When assessing either option when it comes to your investments, it’s easy to get trapped by simply following the lowest cost option. However, if your DIY investing is struggling to match up to the stock market, a Robo-Advisory or an adviser’s average portfolio performance, it may be worth considering assistance.
Furthermore, you may believe that because a Robo-Advisor is “cheaper” than an adviser that you will retain more of your profits. However, in reality, most portfolio’s performance is after fees — so when comparing an adviser’s portfolio performance (ask for it) against counterparts, you may find the “extra” fee is worth it. More so, if their fee also includes the extended financial planning services, the value for money may definitely be worth your while.
And in terms of how you would be saving, it is likely that whatever method you move forward with, you will learn to either regularly save (e.g. monthly) or save a lump sum — or both! Check out what that means here.
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Lastly, why not consider a hybrid approach? Many of my clients also have their own DIY portfolio where they like to focus on shorter-term, more “gambling” punts, whereas I manage medium- to long-term portfolios where they want me to handle their emotions and complex areas on their behalf with more attention to their needs, risk profiling and future goals. The same can be done with a Robo-Advisory — I have some money in one to see if I can beat their algorithm as a personal challenge!
Fancy some financial advice? I’m here to help!
If you have any questions, are seeking wealth management, or just a chat — drop me an email at:
