How a Wealth Manager Can Help You Do It Yourself

With an abundance of financial information now available online, as well as easy access to low-cost trading platforms, it’s no wonder that so many UK investors consider managing their own wealth. It is also an understandable fascination for people to try and pick the next top performing fund manager or company share.

While it may be intellectually stimulating to manage your own investments, there are a number of hazards to be aware of – and some distinct advantages to using a wealth manager for a portion of your assets.

Are you truly diversified?

Diversification is important within an investment portfolio because it reduces the risk of being overexposed to a certain company, sector, region or investment approach. Holding a range of shares or funds can give the impression of diversification, but there could be a number of reasons why you’re not achieving optimal diversification. You might unintentionally have a predominant exposure to certain investment themes, factors, sectors or regions.

For example, by holding a portfolio of predominantly income focussed equity funds, you are not only likely to be exposed to many of the same stocks held across the income funds, but you are predominantly exposed to income as a style. What this means is that the factors driving the performance of income focussed stocks can significantly affect your overall portfolio performance.

Consider that income focussed stocks are more sensitive to changes in central bank interest rates. A lack of wider diversification means that a change in interest rates could have a material impact on the performance of these holdings. Iain Barnes, our Head of Portfolio Management, discusses this income question in more detail in this article.

Having a diversified portfolio is widely regarded as one of the only true ‘free lunches’ in investing – the benefits it brings come with little if any cost. A properly diversified portfolio can reduce portfolio risk for a given level of expected return, and a wealth manager can help ensure you achieve this.

How not to panic

Most of the time investment markets display a little volatility. Yet periodically there are occasions when volatility rises and prices fluctuate significantly. Usually this coincides with negative news and uncertainty about the direction of the stock market. At times like this, it can be daunting for anyone to see their portfolios in negative territory, and you may be tempted to start selling positions and move to cash to reduce the uncertainty and cap the losses. It’s also only natural to feel the effects of cognitive and emotional biases.

By working with a wealth manager you can benefit from years of investment market experience, and unemotional responses to periods of volatility. At Netwealth our seasoned investment team will always provide timely updates to explain what is happening in the market and what, if anything, we are doing about it.

Helping you to stay on track

Picking an investment which has the potential to go up 10% or outperform the FTSE 100 is all good and well, but what matters most is whether you are on track to meet your financial goals. Our service lets you benefit from online planning tools which not only help you better understand the investment plan you initially set up, but also allows you to monitor your progress against that goal in the future. If you are not on track to meet your goals, it is better to know about it sooner so you can make the necessary arrangements to correct the course.

The effects of costs

The rise of low-cost trading platforms has made it cheaper for investors to buy and sell investments themselves. However, if you are investing in active funds, the costs of holding these are significantly higher than either direct stocks or passive funds.

While there has been a trend throughout the investment industry over the past few years to lower costs, active funds have still not fully embraced this drift. An October 2018 report in Money Observer1 highlighted research by Morningstar – showing that while index funds and exchange traded funds cut their charges by 28% over the past five years, actively managed equity funds cut their fees by an average of 18%.

The result is that the average cost in 2018 for active funds is 1.09% compared to 0.29% for passive funds. This may not look like much of a difference but it quickly adds up.

With a modern wealth manager like Netwealth the total costs for a fully managed investment portfolio are often only marginally higher than the cost of managing investments yourself. We offer a fully managed discretionary investment service from just 0.70% per annum, including all trading charges, VAT and the costs of underlying investments.

Benefits of a core + satellite approach

What is becoming increasingly popular is for DIY investors to adopt a ‘core and satellite’ approach. In this way, you can continue to self-manage a portion of your assets and entrust the bulk of your assets to a professional.

By choosing to place the core of your assets with a wealth manager you benefit from knowing that the majority of your assets are being professionally managed, with disciplined and unemotional decision-making and according to best practise principles. Not only this, but using a modern wealth manager like Netwealth allows you to make full use of valuable online planning tools.

In summary…

By appointing a wealth manager like Netwealth to invest the core of your portfolio, you keep control – not only of the satellite portion if you wish to continue selecting some of your own investments – but also over setting up your investment plan and making future changes as necessary.

You can control the level of risk in your portfolio and can choose from a range of account types. Set specific financial goals, too, against which you can track performance online at any time. You may also be reassured by the fact that all of our portfolios are highly liquid, low cost and globally diversified, and that our investment team are seasoned investors with years of institutional money management experience.

Please remember that when investing your capital is at risk.

1 Active funds fail to keep pace with passive fee cost cuts

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