With the rise of free online trading platforms and investment apps, many individuals are managing portfolios without the assistance of investment or financial professionals. We explore some of the common pitfalls that these DIY investors can fall into, and how a financial professional can help you navigate these challenges.
1. Impulsive Decision Making
Money is an emotional subject, and it is no different when it comes to investing. Some DIY investors can fall into the trap of letting their heart lead their head, and as a result, can make some impulsive decisions. This can come in the form of switching portfolios, pulling the plug on investments too fast or even taking risky last-minute options to try and gain a larger return.
Investing needs to be guided by goals, and a financial professional can help steer your investment towards them, ignoring impulsive and often risky snap decisions in favour of a larger overarching goal. They will have a plan, and work your investments around this goal, removing the emotional attachment you would have to your money.
2. Misjudging Risk
Risk and return are a balancing act that has lots of contributing factors. If you invest with too much risk, you could become a victim of market volatility at just the wrong moment. This is particularly relevant for those DIY investors looking to cash in or draw upon their investments in the shorter term. Having all your eggs in one basket may seem appealing but could leave your investment open to more risk.
A financial professional will be able to guide you on diversification, owning a variety of assets whose returns are independent of each other, which can come together and create a more stable portfolio. Financial professionals also have more experience with investments, as they handle multiple people’s portfolios, so they will often have a good grasp on the winning recipe for a portfolio.
3. Lack of Tax Planning
DIY investors can often be attracted to the investment market by the appeal of large payouts and forget to consider that there are tax implications of these large windfalls. There are also sometimes complex rules around these tax liabilities that are not immediately clear to someone unfamiliar with the sector.
Finance professionals can assist you with how to make the most of ISA allowances and pension benefits to maximise tax-free perks. They can also make sense of tax rules that are ever-changing and hard to digest, proactively harvesting tax losses, deferring taxes, or choosing tax-efficient investments results in lost savings.
Why Should I Pay?
While it is true that you do not need qualifications or tenure to be able to reap the rewards of the investment market, the topic of investment or financial professionals' value comes down to personal preferences.
With low-cost self-investor platforms making the sector accessible, some won’t see the benefits that a tenured finance professional can bring. However, our clients value the advice and planning that comes from our team of qualified and experienced planners. They look at every aspect of the financial picture to create a bespoke solution that weighs up aspects like tax, risk and goals to ensure that you don’t fall into the common traps that affect DIY investors.
Research from Vanguard shows that investment advice on average increases portfolio values by 3% per year. And while 3% doesn’t seem like much, over the lifetime of an investment, this can add up to a significant benefit.
Ditch the DIY
Ready to ditch the DIY investment and speak to a financial planner? Get in touch with a member of the team today or fill out our financial health check form and one of the team will be in touch.