Taking full responsibility for your finances, including any investments, is both daunting but highly recommended.After all, no one should (and does) care as much about your money as you do.
Here are three more reasons why I think the do-it-yourself approach should appeal to many Foolish readers.
Reason 1: Investing doesnt need to be difficult
The financial services industry would have people believe that investing and the stock market are far more complicated than they actually are. Throw in some scary-sounding jargon and impressive charts and its easy to see why those hesitant to handle their own money and low on time are throwing it in the direction of the professionals.
In reality, investing is one of the few pursuits in life that almost anyone can become successful at. Far more important than academic qualifications, or decades of experience in the City, is a willingness to take calculated risks and the ability to remain calm when everyone else around are losing their heads.
Nor does profitable investing necessarily require countless hours of research. If youd rather not analyse individual stocks, just direct your money into passive vehicles such as index trackers and exchange-traded funds. Since they follow the market, youll never outperform, but youll never under-perform either. Youll also only need to check your portfolio once or twicea year.
Reason 2: Save on fees
Cutting costs as much as you possibly can ensures that more of your money is put towards compounding your wealth rather than lining the pockets of the aforementioned fund managers and financial advisers. Its arguably one of the key principles of successful investing that isnt mentioned often enough.
Why pay a professional 0.7% or so a year to pick what she/he considers to be the best large-cap income stocks when you can do something similar with a passive fund for far less, while still generating a reliable dividend stream? Even if the former outperforms the latter, the higher fees eat into this better return. Its also worth mentioning thatvery few professional investors are able to beat the market consistently over the long term.
Reason 3: Freedom
Taking control of your finances means that theres no one else to blame when things go wrong. The flip side is that it provides you with enormous freedom to invest in whatever you want.
The professionals should be so lucky.If a manager is charged with finding value, she/he cant simply sell their holdings and invest in high-growth companies, even if they suspect that this might generate the best returns over the next few years or so. You have that power.
As a private investor, youre at liberty to invest based on your attitude to risk and time horizon. If youd rather operate a fairly concentrated portfolio consisting of 15-20 high-quality stocks, so be it.
Your principles are also relevant. If youd rather not buy sin stocks (e.g. gambling and tobacco firms), you dont need to. This would be one example of when index trackers should be avoided since they buy a little of everything.
Regardless of what you do, a final advantage worth noting is that you are able to be nimble in a market where fund managers can only ever buy in bulk. That can also be a huge bonus if you want/need to exit positions quickly.
Do you want to retire early and give up the rat race to enjoy the rest of your life? Of course you do, and to help you accomplish this goal, the Motley Fool has put together this free report titled “The Foolish Guide To Financial Independence”, which is packed full of wealth-creating tips as well as ideas for your money.
The report is entirely free and available for download today, so if you’re interested in exiting the rat race and achieving financial independence, click here to download the report. What have you got to lose?
