The benefits of professional investment in an era of DIY portfolios
You can hardly have failed to notice that there are lot of companies encouraging the casual invesor these days. Slick apps backed by flashy advertisements extol the virtues of plunging yourself into the world of financial markets and becoming an immediate Wall Street whizz. Cut out the middleman and explore the world of investing from the comfort of your smartphone. The sales pitch is convincing. The reality needs more scrutiny.
The world of investment is complex. That complexity is likely to increase if you are a wealthy individual with a large portfolio of assets. The universe of individual securities, indexes, investment funds and other instruments is vast and assessing it as an amateur investor can be a tough task. Platforms that allow you to take control of your portfolio certainly offer autonomy, but they also ask a lot of the customer.
Managing your own investments comes with a variety of risks. Everyone likes to think they make decisions rationally, but this is not always the case, especially with investing. When people invest, their decisions can be influenced by a number of biases that can have a detrimental effect on outcomes. We may have a soft spot for certain brands or feel more comfortable investing in stocks over bonds because that’s always been the family way. If these choices are not made on firm analysis, they could potentially harm you financially.
Patience pays off
The sages of the investment world tend to agree that taking a long-term approach to investing is always sensible. Personal investing platforms can often endorse the opposite approach, with quick trades encouraged and new opportunities constantly advertised. Despite being reactive and potentially unfocused, this kind of fast-paced investing can be expensive as some providers will charge for trading volume. Rapid and adrenaline-fuelled trading may encapsulate the Hollywood stereotype, but prudent investors should always be wary. Markets are hard to predict and even those with experience can get burnt.
The danger of being caught up in herd thinking can also afflict the casual investor. The desire to follow the crowd may feel rational, but these investments can become overvalued and result in negative outcomes. History is replete with examples of investors who have rushed to invest in the next big thing, from tulips to dotcoms, but in some cases the bubble bursts and investors suffer. There is also risk in following the crowd when it comes to selling too early. Volatility does not necessarily mean poor long-term value.
Loss aversion is another major stumbling block. Most investors are attracted to positive returns, but many are held back by the fear of losses. The pain of losing hits investors harder psychologically than the pleasure of making gains. While it’s good to be cautious and thoughtful when investing, too little risk could potentially diminish your wealth instead of protecting it. The current high level of inflation in many Western economies means that sitting on too much cash, for example, could be a poor use of your funds.
A professional investment adviser will be able to navigate the world of investments for you and take a dispassionate view on how to deploy your wealth. An experienced wealth manager will discuss your level of risk with you and ensure your portfolio is tailored accordingly. For those that prefer to leave investment strategy purely to the investment adviser, a more passive approach is always available. Most importantly, you can be sure your assets are being managed by someone with a deep experience of the investment world.
At London & Capital, we believe that it is important to protect and grow your wealth so you can ensure the best future for you and your family. Ensuring that your assets are managed professionally is key to achieving this aim and our advisers are on hand to help you do just that.