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Three reasons why you're better off investing on your own

by , 24 July 2013

A while ago I was speaking to a friend of mine about investing in shares. He told me he'd placed his entire portfolio in the hands of a company that manages funds.

He felt that because he wasn't a professional investor, he couldn't make money on the stock market. So, he believed, his money was better off with professional fund managers.

But the thing is, investing on the stock market isn't as hard as the professionals would have you believe…

And, most of the time, you're better off investing your own money instead of handing it over to fund managers. In fact, there are three reasons why I believe you’re better off investing for yourself!

Three reasons why you want to invest for yourself!

Reason #1: No costly financial advisor or portfolio manager

Annual fees for leaving your money in the hands of fund managers can range from about 1.5% to 2.5%! In fact, these fees are so high that two in three fund managers underperform the market after considering these costs.

And these odds get even worse when you look at a longer time period…

According to Steven Nathan, the Chief Executive of 10X Investments, 19 out of 20 South African fund managers have delivered results below the market index over 20 years.

With the current volatile market, it’s harder than ever to predict where the JSE will go to next. But the main reason fund managers underperform the JSE All Share Index (ALSI) is due to their fees.

A study conducted in 2005 by Deutsch Securities analyst, Roland Rousseau, showed that over a 20 year period, a fund manager would have to outperform the market by a staggering 58% - just to match it after all the costs are incurred.

But when you invest your own money, you aren’t hit by all these additional management fees.

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Reason #2: You have complete control of your wealth

By picking the shares yourself, you’ll know exactly what’s happening to your money and why. If you just dumped it into a Unit Trust, you probably wouldn’t even know who’s behind managing your hard earned money or what you were invested in!

If the money you put into your unit trust is underperforming, you probably wouldn’t know why… But if you manage your own portfolio you’d be able to identify the problem and quickly make changes to solve it.

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Reason #3: You have one key advantage fund managers don’t have

As a private investor, you have the advantage of speed. You can quickly buy or sell your holdings in a matter of seconds. Whereas the big guns take a long time to make a move because they buy and sell such huge chunks of shares!

And because of the time it takes for fund managers to buy a share, their opportunity to take a big profit drops!

As you can see, investing your own money will give you some great advantages.

So don’t be afraid to invest your own money. And if you’re nervous to start, try managing just a portion of your investment money. Then as you build up confidence, you can take over the management of more and more of your portfolio.

Three reasons why you're better off investing on your own
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