Douglas A. Boneparth is a Westfield resident and Founder of Bone Fide Wealth, LLC, a boutique wealth management firm in New York City, and co-author of The Millennial Money Fix. Contact Douglas to learn how he’s not your parent’s financial advisor.
Investing is now a commodity. If you think differently, you’re in denial. Look around, the market is flooded with investment products and platforms capable of getting you properly invested for little to no cost at all. It’s true. You can own a fully diversified portfolio of mutual funds for free.
Obviously, not everyone invests on their own or for free. There are billions upon billions of dollars currently invested with online platforms, called robo advisors, and with investment professionals. Generally, for a fee that’s based on the value of your account, either one can manage your for you.
These are the three ways you can invest. Period. You can do it on your own or outsource it to a human or computer-based intermediary. One method isn’t necessarily better than the other. Each option carries its own advantages and disadvantages, and I believe it’s important for you understand what those are.
Again, investing can be very cheap, especially when you do things on your own. In fact, you can literally invest for free. Earlier this year Fidelity unveiled it’s ZERO expense mutual funds, a set of four index funds that have no expense or minimum and provide exposure to vast majority of the capital markets. While this offering is limited, it’s a clear signal that the game has changed.
If you have the time, confidence, inclination and discipline to invest your own money, nothing will be more cost effective than doing things on your own. All else being equal, self-directed investing keeps more money in your pocket. The more money you keep in your pocket, the sooner you can reach your financial goals.
However, the greatest challenge to investing on your own isn’t the time it takes to learn how to invest or the implementing a particular investment strategy. It happens to be you the investor. That’s because our emotions make it inherently difficult to stick to long-term strategies. It’s human nature to want to do something when your pocket’s getting punched. Your resolve inevitably gets tested and most people fail to stay the course.
A little technology can go a long way in solving some of the disadvantages that come with DIY investing. For somewhere in the neighborhood of 0.35%/year or less, investors can leverage digital platforms to handle the management of their investments. And there’s no shortage of platforms to choose from either.
Robo advisors can be a very effective solution for long/term buy and hold investors. Placing an unemotional system between you and your money creates a space to assess your emotions, which can be helpful when your primal urge to do something kicks in. Robos also provide consistency through automation, which supports building a healthy investment discipline. Furthermore, robos free up your time by administering and implementing your portfolio for you.
Robo advisors will not only continue to grow in popularity, but they will also continue to expand their offerings as well. Right now, however, they cannot match the level of control or the breadth of services you can get on your own or from working with a professional.
For those that prefer a personal relationship and access to a wider range of investment opportunities and services, a professional is likely what you’re looking for. Professionals can be as comprehensive and as hands on as you’d like them to be. They can also coordinate your needs with other service professionals in your life. And should you need it, they help you process your emotions and provide context when things get crazy. They’re can be more than just a buffer between you and your money.
Within the wealth management profession, there’s a growing conversation regarding how and what financial professionals charge for investment management. While a fee of about 1%/year is today’s *standard*, there are many other ways to pay for investment services. From flat fees to hourly rates and hybrid solutions that bundle or unbundle services like financial planning, you can find a way to work with a professional that works best for you.
Unfortunately, what many investment professionals fail to realize is that charging an amount above what a robo advisor charges — regardless of how they charge — means they need to provide value above what a robo advisor provides. Whether that’s through financial planning or other financial services, investment professionals must demonstrate their value. Otherwise, they risk doing too little and getting paid too much.
These are your choices when it comes to investing. No matter how you go about it, be sure to always do what works best for you in the context of your own financial life. This not only means understanding your personal preferences and perception of value, but it also means understanding what your time is worth and what you’re willing, or not willing, to do by yourself. And last, but certainly not least, it means knowing exactly what you’re paying for.
This post originally appeared on my blog.
Advisory services offered through Bone Fide Wealth, LLC, a Registered Investment Adviser.