Context, capability, capacity, control and cost.
These 5 Cs are relevant if you have a pension or ISA. They can help you decide if you’re someone who wants to ‘DIY’ and build your own portfolio, or to delegate the decision-making to others with more expertise.
Investment – Context
The importance of the investment could help to point you in a certain direction when it comes to DIY versus delegation. The more significant it is, the more you might want some guidance and expert input. For example, if my pension pot was worth £150,000, I might want to spend more of my time making sure it was invested the right way for me, but that doesn’t mean I choose all the investments myself – I might want some help. If I’m investing £50 into an ISA each month, I might feel more comfortable making my own decisions. Context gives you a starting point.
Capability – do you have the Know How?
I’m an avid DIYer of shelves, decking, painting, even wallpapering. But I happily pay an expert to do the stuff I’m not safe to do myself. Before deciding how to invest, honestly reflect on your ability to choose between different funds, and to build a portfolio.
Do you have the knowledge to decide how much money should go into each asset class or geography? What proportion would you invest in equities, bonds, property or commodities? How do you ensure you don’t take too much risk? How do you tell a good fund from a bad one? What information will you rely on? How frequently will you review it? There are hundreds of websites, tools and other resources answering some of these questions. But would you be able to do it better than the expert who could do it for you?
Capacity – how’s your diary?
Even if you decide you have the capability, do you have the time to DIY? What’s your capacity to spend time to review performance, do the required research and actively make switches? Like many of us, your life may be busier than ever, making it difficult to find the time to DIY a portfolio of funds. Some people treat it like a hobby and enjoy making time. But for others, including myself, it’s just not possible due to work, family and other commitments.
The dangerous middle ground is if you convince yourself you have the time and space to DIY. You set up a portfolio, take an interest to begin with but then the reality of life’s other priorities kick in. If you don’t have the time to review or change it, you are in reality ‘asleep at the wheel’. This can lead to very poor performance.
Ensure you are honest with yourself about the commitment you are able to make.
Do you want to be in control of your investments, making the decisions about where to invest? Consider if you want to ‘drive’ or if you want to sit back, relax and be the ‘passenger’. Deciding to DIY means you can create a portfolio of your own funds, your way. But doing this means you take responsibility for the overall level of risk and potential return.
Or do you decide to delegate so you aren’t in active control and don’t take responsibility for assessing risk/return? In this instance, you’re probably seeking peace of mind that someone is looking after things for you. If you have capability but not capacity, giving up some decision-making control might help you move forward.
One of the main reasons to DIY is to try to save money. After all, the small charges soon add up. But there is sometimes an assumption that a fund will cost you more than buying the individual shares directly. It’s always worth checking, as sometimes funds have massive buying power. This means they can negotiate lower charges and pass these savings on. You could be paying less for a fund that does more!
More importantly, the returns generated by making good decisions rather than bad can far outweigh the difference in costs. Its very common to see one type of investment outperform another by say 10% or even 20% in a year. This difference can dwarf the impact of charges.
Whether you decide to delegate or DIY, the 5 Cs will help you to think about which approach best suits your personal needs and resources. We have a wide range of options to suit both Delegators and DIYers. Remember, if you’re in any doubt speak to an expert.
The information in this blog and any responses to comments are not financial advice. The value of investments can go up or down and may be worth less than you paid in.