Investors who are seeking control over their investments and want to individually administer their investments have the option of managing their own portfolios. Do you want to manage your own investments in order to save money from managerial and administrative fees? Generally, this is the idea behind do-it-yourself portfolio management, but investors should be careful to be realistic about the implications and downfalls of managing their own money.
One of the most unfavorable aspects of do-it-yourself portfolio management is diversification. Larger firms are able to “pool” investments in order to purchase funds that would be out of reach to the individual investor. Therefore, individuals who take their investments into their own hands may find themselves limited in this regard. This is not to say that do-it-yourself portfolio management is a poor decision, it simply means that you could face a bit more difficulty if you do not properly educate yourself. With this said, one must also consider the time it takes to properly educate yourself when researching different opportunities, markets and efficiently administering your own portfolio. The best rule of thumb for would-be do-it-yourself investors is this: If you do not have the time to invest, then do not invest your money.
On the other side of this coin is the opportunity to control your own investment and administer it yourself without paying costly fees. The expenses of investing are wide-ranging and include management fees, annual fees, inactivity fees, and slippage. When you make your own decisions you effectively eliminate management fees. Additionally, if you administer your own investments on-line you are able to reduce the effects of slippage.
Another reason to opt for do-it-yourself portfolio management is the control you gain. While there are many respectable investment firms from which to choose the bottom line is this: they are in business to make money. It is possible that you are misled, misinformed, or down right lied to about a certain investment. Do-it-yourself portfolio management is the best way to feel secure in your investments because you have done the research yourself and feel confident with your own decisions. As the old saying goes, knowledge is power.
Some of the best tips for getting started with do-it-yourself portfolio management are as follows:
– Research! There are numerous tools available online, as well as books and manuals that can be purchased. Make an initial investment in time to educate yourself before you make an investment on your own with money.
– Think about diversification. Be sure that you have the funds available to allow for proper diversification. If your money is invested in only a few areas there is the possibility that you will see them all decline at once. Diversification is important for all investors, but is a must for do-it-yourself portfolio management. Try to invest in at least 12 stocks initially and increase this number as you are able. Anything less than this would not allow for enough diversification but be sure to not purchase so many that is impossible to manage them all.
– Be realistic. Do not get caught up in gimmicks and ploys. If you begin doing a lot of research you will, no doubt, start to receive a lot of junk mail offering you the latest hot investment or tip. Keep in mind that the companies who produce these publications often have ulterior motives. Get rich quick schemes should never be trusted, and the same goes for investment opportunities that sound too good to be true.
– Start slow. Practice with a few small investments until you feel comfortable gauging market fluctuations and various other aspects of investing. Do-it-yourself portfolio management is not an easy task and the best way to succeed is by learning, often through trial and error.
– Be disciplined. Do not jump every time you see the slightest fluctuation. Develop a clear plan for yourself and do not waiver from it at the smallest blip on the screen. This is nothing other than irresponsible investing, and it will decrease the integrity of your portfolio greatly.
Regardless of the specific investments you choose, these basic guidelines for do-it-yourself portfolio management should be adhered to throughout the process. By simply educating yourself and sticking to a basic plan you should be able to invest your own money with confidence and confidentiality.