Is ‘Do It Yourself’ investing a cheap trick?

Iain Barnes, Head of Portfolio Management at Netwealth, discusses the pros and cons of DIY investing. 

Investors may sometimes reasonably ask: “If you are passive investors, why don’t I just invest in passive funds and ETFs directly myself?” Let us explain the benefits of choosing a wealth manager like Netwealth to manage your money for you.

Our investment approach aims to build portfolios thoughtfully and efficiently so that we can maximise returns for a given level of risk. In creating the right asset mix we take a long-term view, while proactively monitoring changing economic and market conditions.

Replicating our strategy might be manageable for some savvy investors, but even the most financially-literate clients rarely have the time, inclination or discipline to stay on top of their investments day after day. Our clients prefer the reassurance that, for a small charge, an experienced team is watching the screens so they don’t have to.

When individuals invest for themselves, it’s easy to fall prey to the many human biases that all people face. These thinking traps (which can include loss aversion, overconfidence, familiarity bias and herd behaviour) can have considerable effects on investor outcomes – and are better overcome by a watchful and objective team with all the necessary experience to make informed decisions about where and how to invest.

DIY investing may well be cheapest – but it’s not always the most cost effective. For personal investing, individuals can invest in a single equity index-tracking fund at a very reasonable cost – say for 0.2%. But holding more than one strategy (by diversifying) is usually worth it. Owning funds also requires a platform or a wrapper to host the investments, which is usually another 0.1% to 0.2% a year at a minimum.

Hiring a wealth manager like Netwealth lets you roll all your ongoing portfolio management, administration, custody, trading and reporting costs into one straightforward fee, clearly explained upfront and quoted including VAT.

So, while buying passive funds on a DIY basis may seem cheaper, being a passive investor is rarely a better option overall. Especially when we can actively manage investments on your behalf, reducing your stress and offering advice if you need it – at a truly competitive cost.

For information on Netwealth’s cost efficient investment service, visit netwealth.com

When investing, your capital is at risk.