Investing on your own? Here are some DIY investing tips and tricks.
What to Consider
Let’s face it. After health, happiness and family, how to manage your nest egg is probably the most important decision you will have to make in your lifetime. Portfolio management, diversification and asset allocation are just some of the considerations. Overwhelmed yet? Luckily, there are two ways to go about investing your money: doing it yourself or seeking investment advice. Here are a few factors to consider when making this decision:
- Knowledge: Your most important asset – when it comes to investing your money – is knowledge. Investing is hard; fundamental and technical analysis, understanding company reports, keeping track of the news…there’s a ton to know! Investment advisors bring professional expertise, allowing you to take comfort in the fact that your money is in knowledgeable hands.
- Emotion: You know the old saying: “Buy low, sell high”? Well, it turns out when it’s your money on the line that’s a lot easier said than done. When investors can’t keep their emotions in check they panic; buying stocks during the hype and selling stocks at their lows. Investment advisors can take the emotional side of things out of the equation and focus solely on the facts.
- Time: They say, “Time is money”. But what they fail to point out is that making money takes a lot of time! Investing your money prudently takes a lot of effort and research. It can be a fulltime job! Investment advisors have the time to research and analyze the markets for you.
Professional investment advice can alleviate many of these stresses and concerns. So whether you’re a do-it-yourselfer or prefer professional help, this mission will show you how you can achieve your goals.
In this mission, we’ll look at some of the advantages and disadvantages of managing your own portfolio versus using a financial advisor.
What is a Stockbroker?
You know those people on the trading floor of the New York Stock Exchange (NYSE), yelling and throwing hand signs at each other? Well, most of those people are called stockbrokers. Before the surge of the World Wide Web, stockbrokers’ main purpose was that of a “matchmaker”. They would match a buyer and seller of the same security together.
Today, this is still part of a broker’s role, but the Internet has made the buying and selling of securities extremely easy. Stockbrokers usually act as financial advisors, providing clients with research and information on various investment strategies. They reduce the effects of rash decision-making by using their experience and expertise rather than emotions to perform their job.
Putting the stock in stockbroker?
Don’t let the name stockbroker fool you. They deal with all types of securities, both on public stock exchanges and over-the-counter.
Stockbrokers are paid a commission or fee for each trade they perform. These fees may also include percentages on profitable sales of stocks. Other brokers may charge a quarterly or annual fee instead.
Brokers do not necessarily have to be individuals. There are also brokerage firms that are entire institutions facilitating the trade of financial securities. Some notable firms are: Merrill Lynch, Goldman Sachs, and JP Morgan Chase.
Watch this video to learn more about the stock market and what a stockbroker’s role is in it.
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What is a Financial Planner?
Stockbrokers provide a pretty limited service in terms of advice. As we’ve seen, they basically buy securities for their clients and provide a modicum of advice.
With this in mind, it’s easy to see a place in the market for a more full-service advisor. Enter the financial planner.
A financial planner (or portfolio manager) looks at the bigger picture. They analyze an individual’s current financial state as well as their goals, risk tolerance, and time–horizon. This type of financial advisor has more control over a client’s portfolio and often balances investments with the person’s debt, expenses, and mortgages.
These professional investment advisors allow you to go to sleep comfortable, knowing your money is in good hands. The experts provide you with a strategy based on research and analysis. They have a fiduciary duty to the performance of your money, meaning they should not be putting their personal interests ahead of yours. Furthermore, they have incentive for you to do well because they usually get a commission off your profit.
Now, of course, not all investment advisors fall under the characteristics we’ve been outlining. They’re not all the best of the best. That’s why it is crucial that you do your homework and ensure that their incentives line up with yours. In the next step, we’ll show you just how to do this…
How to Find the Right Investment Advisor?
Finding the right investment advisor is kind of like finding your soul mate. OK that may be a bit of an exaggeration; but still, it can be quite tricky. Still, when it works, you’ll know. Here are some guidelines to follow when searching for the right investment advisor for you.
Know what you are looking for
- What kind? We have spoken about a few of the different types of advisors out there, but there are tons who specialize in many different areas. Some focus on portfolio management, others on retirement planning, stock trading, foreign exchange… etc. Figure out what types of securities and industries you’d like to invest in, as well as what your goals are, and go from there. Also, consider what amount of control over your investments you’d like them to have.
- How much? Make sure you understand how their fee structures work. Some advisors charge a set fee for a big picture financial plan, while others may charge commission on every transaction you make with them. The goal is to find the best and most credible financial advice – tailored to your specific needs – at the lowest possible price. But don’t just go for the cheapest possible advice. You’re not purchasing a pair of socks…this is your financial future we’re talking about!
Do your research
- When you start looking at advisors that seem to fall under the criteria you're looking for, be sure to do your due diligence. Try to find information or reviews from other people who have used their services before.
- Do a background check. All financial advisors should be registered with the Securities and Exchange Commission, the Financial Industry Regulatory Authority, or a state securities regulator. You can use sites like finra.org or nasaa.org to verify this.
- Ask around. Do any of your friends, family, or colleagues use a financial planner? Are any of them willing to provide a recommendation?
Going At It Alone
DIY investing can be a lot of fun. But it’s a lot of work too. You’ll need a lot of time, knowledge, and a method for managing your emotions.
In order to invest your money properly, you need to do research – and a lot of it. Thankfully, the Internet has made that more possible than ever before. Investors looking to go at it alone can take online courses (often for free like this one!), check quotes and earnings in real-time, and track financial news 24/7.
Besides just doing research, here are some other things you should consider when investing on your own:
- Use an online stock simulator: While books and theories are great, there’s no better way to learn than by doing. A great place to start is by creating a practice portfolio on wallstreetsurvivor.com. With this stock simulator, you can make real-time investments with fake money, practice and experiment with different strategies and watch your portfolio fluctuate with the market.
- Take baby steps: Once you are ready to start trading with real money, start small. Put a small amount of money aside for you to make your initial investments with. As we said earlier, knowledge is your greatest asset. Practice is the best way to get that knowledge, but let’s not lose all our money while getting our feet wet.
- Diversify: Don’t forget the basics. Successful do-it-yourself investing is the same as traditional adviser-based trading: you must spread your risk and not hold too much weight in any one asset.
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