Investing in the stock market can seem like an intimidating idea. It may seem safer to allow a specialist to manage your investment portfolio than to gamble with your own limited knowledge.
However, could you stand to gain more if you took the risk and did it yourself? We find out what you could stand to lose or gain in both circumstances.
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Don’t risk losing your money
According to Andrew Bradley, CEO of Fiscal Private Client Services, picking your own stocks is not like picking fruit in the supermarket where it’s not significant if one apple goes bad.
“When you buy stocks, you are effectively buying a company. If you were to buy a business, how much research would you do beforehand? Hopefully a lot, if you don’t want to lose your money,” says Bradley.
“Just because the company may be well known does not mean that it’s well run. The company you invest in could go insolvent and you could lose everything you have invested,” he adds.
“If the company is run poorly, your investment will not perform as well as you’d like and you may lose some of your investment,” says Bradley.
“There is no substitute for homework and making sure you understand the company, its management, the industry, and markets, and what you can expect from your investments,” he explains.
What’s the cost of having an expert invest for you?
If you decide that you’d like to hire someone to invest on your behalf, you should first consider the cost of doing so. Bradley points out that there are several categories of fees.
“If you use a fund manager, they will charge you a fee for their skills. This can be anywhere from 0.5% to 1% per annum. Then there are additional trading costs that need to be covered, such as brokerage fees, custody fees, and accounting fees,” says Bradley.
Similarly, he explains that if you use an investment platform, there are usually additional platform administration costs which could be anything from 0.05% to 0.75% per annum, as well as some other transaction costs.
Finally, if you use a financial planner, Bradley says that there would be additional financial planning fees of anything from 0.25% to 0.5% per annum.
Which is lower risk?
According to Bradley, many fund managers are skilled and have a good research process and resources, which should reduce your risk considerably.
However, he believes that if you have done your homework and put together a well-balanced and diversified portfolio then you can get returns as high – if not higher– than a fund manager.
“It’s important to remember that investing without a fund manager is not cost-free,” says Bradley.
“However, if you’ve upskilled yourself, done the right research and homework; if you enjoy doing it, and you have the ability to manage your emotions, then picking your own shares is a viable option,” he says.