Why Should I Use a Wealth Manager to Invest in ETFs?

We sometimes get asked, “If you are passive investors, why don’t I just invest in passive funds and ETFs directly myself?” We’d like to explain the benefits of choosing a wealth manager like Netwealth to manage your money for you.

Our approach is strategic, not static

The goal of the Netwealth investment approach is to deliver thoughtful, efficient exposures to liquid assets to maximise client portfolio returns for a given level of risk. We take a strategic, long-term view when building the right asset mix. While our team is always keen to avoid unnecessary trading, as the economic and market environment can change through time, so do our asset allocations. This can either be a strategic shift, or on some occasions more of a cyclical change to address shorter-term risks.

Professional discipline to overcome behavioural biases

Our clients have a range of understanding about financial markets. Given that we believe in providing full transparency around our holdings, replicating our strategy could be manageable for some investors. But even the most financially-literate clients don’t often have the time or inclination to stay on top of their investment portfolios in a disciplined way – there’s a difference between knowing what you’re doing and wanting to do it in your own time. Our clients prefer the reassurance that, for a small charge, an experienced team is watching the screens so they don’t have to.

When individuals invest for themselves, it is easy to fall prey to the many human biases that all people face. There’s a library of academic literature that examines why we can lose objectivity and often make mental shortcuts that result in making poor investment decisions. For example, when we look to the actions of others for guidance, we may be affected by herd behaviour and follow the crowd in choosing to buy or sell without objective scrutiny.

These thinking traps (which can include loss aversion, overconfidence and familiarity bias) can have considerable effects on investor outcomes. For example, increased volatility may prompt the kind of behaviour that leads investors to miss out on the best periods for investment returns, which can be concentrated over short periods of time. For instance, missing only the 10 best trading days in the US stock market over the last 30 years would have resulted in returns of 399% compared to 933% by remaining invested throughout.1

Cost-effective diversification

As is commonly understood, having diversified investments makes a lot of sense – but to diversify well requires knowledge, dexterity and effort to understand how a portfolio’s moving parts interact. It’s just as important to ensure that any changes in individual investors’ ability or willingness to take risk can take place seamlessly within a portfolio construction framework – and without having to start the process all over again.

Like many tasks, a DIY approach to investing may well be cheapest – but it’s not always the most cost effective. For personal investing, individuals can invest in a single equity index-tracking fund at a very reasonable cost – say for 0.2%. This may represent a better route to investment than buying most actively-managed strategies, but holding more than one strategy is usually worth it.

Owning funds also requires a platform or a wrapper to host the investments, which will usually be another 0.1 to 0.2% a year if one can find the best combination of services and fees around. But by hiring a wealth manager like Netwealth, you can roll all of your ongoing portfolio management, administration, custody, trading and reporting costs into one straightforward fee, clearly explained upfront and quoted including VAT.

A prudent alternative to managing your own money… with more if you want it

Our clients choose us to help them meet their varied financial goals. There’s an experienced team of professionals with all the necessary skills and tools at their disposal to make life easier than going it alone. But Netwealth was also founded to help clients escape from the unnecessarily expensive, unsatisfactory service of traditional wealth management firms.

We took the best bits of a traditional offering and wrapped them in a tech-enabled framework. So our team of advisers can help clients with formal advice if and when they need it, and stand ready to support their needs beyond the state-of-the-art analytics that clients regularly use to interrogate their investment portfolios.

With the development of passive funds, you can manage your investments yourself – but do you really want to when the Netwealth team is ready to do it for you at a competitive cost?

Find out more about our investment process here and our results here.

Please remember that when investing your capital is at risk.

1Source: Bloomberg, Netwealth calculations.

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