Thursday, May 17, 2012

Can I Analyze My Own Investments or Should I Pay an Advisor?

Hiring an investment advisor may be the wisest decision.

The debate over whether average consumers should analyze their own investments and manage portfolios has raged on for years. Growing armies of do-it-yourself investors present compelling arguments illustrating that it is indeed possible to create and maintain a profitable investment portfolio without any involvement from licensed professionals.

While advisors don't dismiss this possibility altogether, they stress that those cases are not the norm and there are countless other reasons that hiring a professional is the wisest choice.

Investment Basics

The generic concept of "investing" is relatively simple: purchase investments that have a high likelihood of increasing in value. When the overall worth of those items has risen to a desirable level, sell them and reap the cash rewards.

While countless types of investments exist, by far the most common outlet for such activity occurs in the financial sector — specifically the stock market. Consumers invest money by purchasing shares of publicly traded companies, then sell those shares later.

Portfolio Management

The biggest challenges surrounding successful investing involve knowing what stocks to buy, when to buy them and when to sell them. This task, called portfolio management, will require substantial time, research, knowledge and commitment. Properly managing larger portfolios of different stocks may require exponentially more effort.

Doing It Alone

Walter Updegrave wrote this in an article for CNN Money: "As long as you're familiar with the concept of asset allocation and you're comfortable picking funds, you shouldn't have trouble building a diversified portfolio on your own."

He goes on to explain that a plethora of research and free tools are available to assist you in effectively choosing suitable investments. Comprehensive worksheets and financial calculators can be found online, allowing you to generate the same reports and hypothetical projections as professional advisors, making the argument in favor of doing it alone seemingly valid.

This, plus the money saved that would have otherwise been paid to an advisor, typically appeals to sophisticated and financially confident consumers.

Hiring a Professional

Despite the multitude of online tools, investment calculators and research reports available to the public, managing your own portfolio without the assistance of an investment advisor may not be a wise decision.

Calvert Investments sheds light on this issue by elaborating on many arguments in favor of hiring a professional. They point out that most consumers simply don't have the time necessary to properly investigate and monitor a portfolio, many aspects of successful investing can only be learned from extensive experience and many valuable resources are only available to licensed brokers.

Deciding Factors

Pros and cons exist for both sides of the coin, leaving the issue of managing your own investment portfolio open to a never-ending debate. However, some aspects of your individual situation should be considered before making a final decision.

First, how large is your portfolio? Is it worth an advisor's time and effort? Smaller accounts often require similar work to properly manage, but yield far less income for the investment professional. Do you really want to take on the responsibility? Managing your own portfolio leaves you holding the bag if your account balance drops. You are the one liable for ensuring the account is handled properly. With no formal training or experience, how could you be certain your choices are best?


Forbes: Do You Need a Financial Adviser?
CNN Money: Should I Hire a Financial Adviser or Go It Alone?
Calvert Investments: Do I Need a Financial Advisor?

Resources (Further Reading)

Moolanomy: Should You Hire a Financial Adviser?
Money Under 30: Do You Need a Financial Advisor?

This article is a Twisted Nonsense Exclusive! (05/17/2012)