Recently I came across a study that tried to calculate how big the savings of DIY Investing might be - and the results are quite shocking....
The study is by the stockbroker Numis, as reported by the Daily Telegraph, which concluded: "Handing over your investment decisions to a professional is far more costly than taking the DIY route."
- having your own account with a DIY, execution-only broker
- making investment decisions yourself (i.e. foregoing professional advice)
- keeping an eye on the portfolio yourself
Fees applied by DIY brokers typically range between 0.9% and 1.1% a year, including the fund cost.
By contrast, investing through a so-called “wealth manager”, private bank or other portfolio management service. The total charges levied by these companies typically range between 2% and 3% per year. These figures represent the total annual cost, as underlying fund charges and fees were also included. These costs were not clear or easy to establish, Numis found.
So, in other words, the costs of a DIY Investor are half to a third of that of the professionals.
|Source: Daily Telegraph|
What is more, if you (or your adviser) is investing in 'funds', there will be additional costs, compared with buying securities (such as shares and bonds) directly. This is the case also for 'low-cost' Exchange Traded Funds - but these ETFs allow you to invest in places and classes of assets that it would be difficult to invest in directly.
Of course, I cannot hope to equal the 'expertise' of people who do this for a living (however they might define it); I don't doubt that 'expertise' exists in many cases - experience over decades of stock market cycles, for example, is invaluable is avoiding the 'buy high, sell low' syndrome.
However, some of the key lessons of investing are that very clever people can go bust really quickly and that few investment strategies work all the time or for ever (because successful strategies are quickly duplicated).
Avoiding a 'deadweight' of one or two percent additional costs per annum on your portfolio does give the DIY Investor an advantage over the 'big boys'. And as long as you have an effective investment strategy, you should come out well ahead.
I am not a financial adviser and the information provided does not constitute financial advice. You should always do your own research on top of what you learn here to ensure that it's right for your specific circumstances.