Everybody knows that, these days, saving money isn’t enough. If you want to have sufficient funds to retire comfortably (and to afford upcoming life events, such as the purchase of a house, the expense of children, a new car, renovations, vacations, weddings or any one of innumerable of life experiences), you need to invest wisely so that your money can work for you. The good news is that there are literally hundreds of investment vehicles and options, many of which have proven to have solid, stable returns in the short term, the long term or both. The bad news is that investing doesn’t mean guaranteed income, and there is a risk that you can wind up with less money than you originally invested instead of more.
When it comes to investing, there are generally two types of investors — those who lack time or confidence and prefer to hire an investment advisor or money manager, and those who think they can invest profitably for themselves. Let’s take a closer look at both options to determine which camp you fall into and whether you should be investing for yourself.
Know Yourself First
There’s no question that, technically speaking, almost anybody can trade for themselves. Depending on what assets you are looking to trade, the minimum deposit amount to start investing can be as low as $50 or less (such as with certain foreign exchange brokers), or it can be as high as $10,000 or more (such as with some portfolio managers or stock trading firms). Consequently, the question isn’t whether you can trade for yourself, but rather should you be trading for yourself? In order to answer this question, you will need to take a hard look at your personal circumstances.
- Do you have a solid understanding of the way the market works, either on a technical level, a fundamental level or both?
- Are you interested in learning about the market? Do you have time to learn?
- Can you afford to lose money while you develop a profitable trading strategy?
- Do you have the time or desire to monitor your investments and to adjust them as needed, or are you looking to just “set it and forget it”?
- Do you tend to make rash decisions or to get overly excited about opportunities available to you, or do you prefer to make rational decisions based on hard data?
- Are you able to separate your emotions from your actions when it comes to business and investing?
- Do you have specific financial goals? Do you have ideas about how to achieve them?
It should go without saying that if finance or the markets don’t interest you, you should probably not be investing for yourself. Likewise, if you tend to make spontaneous or rash decisions or get excited about opportunities without fully understanding their consequences, you may be better off with a financial advisor who can temper your excitement and make sure that you’re making rational decisions.
On the other hand, if you have a basic knowledge of how the financial markets work or specific financial goals that you’d like to reach and an interest in learning more, you may be able to handle investing for yourself. At the very least, you may want to give it a try to see if you can handle it or if you enjoy it. There are literally thousands of quality resources available to help potential investors or novice traders get a better understanding of the market, and many of these resources can truly help you build a profitable portfolio.
Set Your Goals
Once you know yourself, it’s important to itemize your financial goals in order to determine if you can meet them independently. Consider whether you’re looking for immediate profits or long-term gains. Are you looking for monthly income from your core investments? Dividend income? A growth-based yield? If you are looking for profits that can be withdrawn in the near future, you may need to trade daily or weekly in order to achieve these results. Do you have the time for that type of regular trading? Do you have a specific trading strategy in mind? Do you have the stomach to watch the market consistently even if it may not go in the direction you were hoping for?
If you are looking for long-term gains, think about Warren Buffett’s theory that markets will rise in the long run. Does this give you the confidence you need to proceed on your own? Or do you still crave the emotional support of a financial advisor?
If you are one of the many who would prefer to have professional guidance for your investing, you are not alone. However, most people are unsure what value or services a financial advisor or financial planner can really provide. Other people are discouraged from hiring a financial planner because of their steep fees or the concern that the financial planner has his or her own motives, which may not always match with the clients’ goals. For these reasons, most people opt not to hire a financial professional.
It is important to note that no investment advisor or financial planner can predict the future. Just because you are paying someone to invest on your behalf doesn’t mean that results are guaranteed. There are plenty of mutual funds that lose money, financial analysts whose market predictions don’t come true, and ways to lose money even with professional guidance.
That being said, loss resulting from independent trading carries with it not only financial liability but also a certain degree of personal guilt that may be difficult to bear. All investment types with respectable yields carry some element of risk and you must know yourself and your goals to best determine whether you can accept this risk upon yourself or if you’d like to share it with a financial planner, even if this comes at a price.