Do I need a financial advisor to invest in MFs or do I have to do it myself?
I am 35 years old, and have built a significant body of work by investing in a consistent and disciplined manner over the past 10 years. I was looking for investment advice, but my friend, who invested on his own, told me that advisers charge massive commissions and add little value. He said similar results can be obtained by researching on my own and following articles / videos online. It put me in a dilemma. What should I do?
Investing, whether it’s DIY or an advisor, is never easy. It is easy to go online and invest in the best funds, it is even easier to miss investment consistency and to follow the path during tough times which helps build wealth long-term. Given where we are in the market, it always creates a sense of self-attribution bias in terms of a DIY investor crediting themselves more than crediting the most important factor i.e. the hand of the Marlet. Note that many mutual funds underperform the benchmark while 90% of stock selection underperforms the index (according to a study).
So, before you venture into DIY investing, you should consider whether you have the bandwidth as well as the passion to periodically research your ideas and rebalance based on various parameters.
For a DIY investor, if you are just starting out, you should know the different asset allocation rules and risk management practices. Because risk always accumulates in the bull market but materializes in the bear market. So if let’s say you are geared towards a certain stock / fund and you build up massive concentration in the portfolio, then if there were to be a temporary stock / fund specific correction, you will need to have the stomach to see your overall portfolio / life savings down 30-40%.
Intermediate approach: We can create 2 different portfolios in total in which 20 to 50% of the corpus based on an individual’s appetite can be invested via a DIY approach while the remainder can be invested through a takeover by an individual. to advise. You have to keep a very exclusive approach and towards the end of a three-year period, emotionally compare both portfolios in terms of performance, effort and cost. If the DIY approach offers similar or roughly back-to-back returns, adviser-led returns, but at the cost of an enormous amount of time and bandwidth, then you have to ask yourself if it worth investing on your own, when the time could be used to focus on your own profession and hone your skills.
So, there are no easy answers. But asset allocation and risk management can help weather many storms, whether in terms of internal ideas and strategies or external market turmoil.
Tarun Birani, is founder and CEO of TBNG Capital Advisors. Queries and views at [email protected]
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