I am 35 years old, and have built a huge corpus over the last 10 years by investing consistently and in a disciplined manner. I was looking for investment advice but my friend, who is investing on his own, told me that advisors charge massive commissions and add very little value. Similar results can be achieved by researching yourself and following online articles/videos, he added. This has put me in a dilemma. What should I do?
-anju
Investing, whether do-it-yourself (DIY) or advisor-led, is never easy. While it is easy to go online and invest in the best funds, it is even easier to miss investing during tough times and the consistency in following the path, which contributes to long-term wealth creation. Given where we are in the market, it always creates a sense of self-attribution bias in the case of a DIY investor, who tends to attribute more credit to the larger factor i.e. the market hand. One should be aware that many mutual funds underperform the benchmark while 90% underperform the stock-picking index (based on one study).
So before getting into the DIY investment, you need to ask yourself whether you have the bandwidth as well as the passion to research your ideas from time to time and rebalance based on various parameters.
For a DIY investor, if you are a beginner, you should be aware of the various asset allocation rules and risk management practices. Because risk is always created in bull market but in bear market. So, if suppose you are biased towards a certain stock/fund and you build a massive concentration in the portfolio, should there be any temporary stock/fund specific corrections, you should take a look at your overall portfolio. 30-40% reduction in life savings.
Middle Approach: An individual can create 2 different portfolios in total, depending on the appetite of an individual, 20-50% of the corpus can be invested through a DIY approach, while the remaining amount can be invested through handholding by an advisor investment can be made. One must take a very mutually exclusive approach and very emotionally compare both the portfolios in terms of performance, effort and cost, at the end of the three-year period. If the DIY approach is offering the same or similar returns than advisor-led returns, after a fee, but at the cost of an enormous amount of time and bandwidth, then you need to ask yourself whether it is worth investing in. The time can be used while he is focused on his own profession and honing his skills.
Thus, there are no easy answers. But asset allocation and risk management can help weather many storms—whether in the case of internal ideas and strategies or external market turbulence.
Tarun Birani is the founder and CEO of TBNG Capital Advisors. Questions and thoughts at mintmoney@livemint.com.
Don’t miss a story! Stay connected and informed with Mint.
download
Our App Now!!
.