The Importance Of Managing Your Own Finances

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While the stock market or other kinds of investing may seem risky, it is more predictable and easier than you think. In fact, in order to outperform their peers and the markets, professional investment managers often take more risks and lose money in the process. Managing your own investments, in contrast, can lead to better returns and more consistent growth.

managing your own finances - laptop hand

Investing your own money also means you can manage your investment plan according to your personal needs and circumstances. An investment advisor will always put their own interests ahead of yours. There’s also the simple fact that you have to pay them first for their “expert advice”, and those advisor fees and commissions can really eat away at your investment returns over time.

Is It Worth Getting a Financial Advisor?

You may have asked yourself, should I use a financial advisor or do it myself? It is possible to do both but given only two choices then taking control of and directing your own investment decisions is always better. Educate yourself so you become more informed and in control over time.

worth getting a financial advisor - sitting on coins

If you do use advisory services then be clear on what you are getting, and how they get paid. Some financial planners offer help with a variety of important decisions. These can involve tax planning, education savings, retirement strategies, insurance products and all aspects of estate planning.

But for the basics of investment management, most people can now handle this themselves and can even end up better off in the long run. On average, using a professional money manager will cost you more and often lead to lower returns.

Benefits of Managing Your Own Investments

There are numerous reasons to take charge of your own investment decisions. Here are a few that click with me.

managing your own investments - man with laptop

No One Will Manage Your Money As Carefully As You

You will know your investment goals and needs better than anyone. Likewise, you will in time figure out your risk tolerance and learn how to manage your investments with the right balance of risk and reward for your age, objectives and circumstances.

A financial advisor will never care as much about you and your family as they do about their own family (which means, their own compensation). So, even if you do use investment research or services, you need to take personal responsibility.

no one will manage your money like you - calculator paper

Now, there will certainly be people reading this that have not yet learned how to invest. No one starts out with the ability to minimize trades and maximize gains, this must be learned. Regardless, no one will look out for you like you will.

Self Directed Investing Gives You Control

Of course, I get it. Investing seems complicated, and scary for many folks. But consider this… Imagine you had an amazing money manager that took your money and delivered a 20% return every year for the last 5 years. Yet, if you have no idea what they are doing, that is bad and dangerous. If you don’t know what’s happening, then you are not in control.

Even if you do use a traditional financial advisor, or use free research available on the brokerage platforms, or even just use a “robo-advisor” app…you must take ownership. And when you start to learn about managing your own finances and investments you’ll realize that a little investing knowledge can go a long way.

self directed investing gives control - woman coins

As your investment knowledge grows so will your confidence and control. You will know why you are considering an investment (because you did the research), you’ll know how much you plan to invest (because you set your own risk guidelines) and you will know how long you plan to hold it (or what price you will exit the position at). There are useful platforms, services and professionals out there, but in the end you must make your own informed decisions.

DIY Investing is Not Brain Surgery

When you are sick you should go to a doctor. But taking care of your own financial health doesn’t require a special degree. You don’t need special qualifications to do DIY investment and managing your own money can be easier than you think. It mostly depends on where you are at in life and when you will need your investment earnings.

Some of the best investment plans are actually quite simple. As much as I wince at index investing purists, the numbers don’t lie. For many people, the easiest approach is to make fixed (and automated) contributions to a tax-advantaged retirement account and invest that money (again, automatically) in a broad market index fund. If that still sounds complicated I promise you it isn’t.

DIY investing is not brain surgery - laptop hand with tea

But you might have your own specific investing needs, goals or preferences. The great thing about the financial industry today — not only in the US but in most developed and developing countries around the world — is that there are financial products for every investment objective.

A starting investor with less than $100 can invest in green energy companies, emerging markets small caps, industrial commodities companies, psychedelic therapeutic stocks, real estate investment trusts focused on warehouses, and the list goes on and on. This is not to say I recommend any of these. For most people, simple is always better. The point is, both the information and the tools are out there for you; you don’t need an advisor to hold your hand.

Out-performance Through Self Investment

Managing your own personal investment portfolio can also result in better returns than by letting the pro drive. It’s a hard truth: most professional money managers under-perform the broader market indexes. This means that if you just bought a diverse basket of stocks (an “index fund”) and let the market do it’s thing, you will often beat the well-paid investment advisor. There are a few reasons for this.

out-performance through self investment - Wall St

Most investment advisors get paid on assets under management (AUM). So, they want you to move as much of your money as possible to their asset management firm. Once you do, they will generally move on to find new money to attract. At best they will simply “advise” you to buy that same index fund that you could have invested in for free. At worst…

Some financial advisors also get paid when you trade. This is a bigger problem, since it incentivizes them to suggest more trading activity (even if it’s not in your long term interest). Generally speaking, they make most of their money whether your investments gain value or not.

Importance of Personal Financial Planning

Even if you just look at actively managed ETFs and hedge funds (the big guys), most asset managers consistently under-perform versus market averages. By growing your investment knowledge and taking charge of your own “DIY investment portfolio” you will not only save money on fees but your investment returns will, in most years, be better than the professionals.

importance personal financial planning - cash design

Self-directed wealth management is the way to go for most people. And if, through your hard work, brilliant ideas or by randomly winning the lottery, you are fortunate enough to become much more wealthy, then maybe it is worth using an investment advisor.

But by then you will have become an informed and confident investor in your own right. And you will be able to get the most out of their services while still keeping control over your financial plans and decisions.

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