Journalists and DIY providers have for a long time played on the the emotion of saving money by doing your investments yourself, I have recently read an article which explains that setting up a DIY account will take less than five minutes. So not only does it save you money but it is easy to set up. For the DIY expert, this is not new news but for new investors this is very appealing.
I have used this analogy before but I will use it again, for me to do DIY in my house is very easy to do. I buy the tools which take me an hour to drive to the store and pick up the tools, and then I save money by building the kitchen or whatever DIY job I want to do. Now all of this works on the basis that firstly I have the skill to do it and secondly that I know what tools I need to do the job.
Now what I read is just like this scenario, it is on the basis that investors know what they need. The first thing to understand is goals, so what are you investing for and what do you want. As such this is your financial plan and once you have that you can then start to look at the best way to achieve that. Now to say that takes five minutes and is easy is frankly tosh!!!!!!
So say we have built the plan and decided what we need then where do we go, now this isn’t easy. The recent change in the way financial services was sold was about having a level playing field but to be honest that is not happening. So let me explain, say I want fund x and the clean share class is 0.75% p.a., there are going to be some providers who demand a cheaper version of that share class. So all of a sudden you need to decide whether provider a or b provides the best access to the funds you need at the cheapest price.
That sounds easy but let’s take this further. Some providers have a very simple fee structure say £20 a quarter with no other fees, others might charge a percentage fee and others may have other more obscure fees. So research into the charges which you are trying to save on becomes a real issue.
So your five minutes is actually a lot more, furthermore where do you want to invest. There is an argument that passive funds (this is where the fund tracks an index like the FTSE100) is the easiest, cheapest route – if this is what you want then why go to an all singing all dancing provider who may charge you a significant fee for this when you could go direct to someone like Virgin or L&G and get access to this at a considerable cheaper price? Or if you want to invest in shares, do you want to invest in a platform that is skewed towards funds because what that means is that equity investors will be penalised.
Now the DIY expert will understand all of this, they will build their plan, they will search out the solution that is best for them and they will understand the investments that they need to achieve their goals. Of course they will make mistakes but we all do but because they understand what they are doing they understand how to correct those mistakes.
We know with the craze in DIY in the home that actually most people found that they couldn’t do it, they then sought out help to sort out the mess they were in and in the long term it cost them more. The tools they purchased are now gathering dust. Investing is not a game, you can learn to to do it yourself and as you learn you become more confident I do agree on that. But for journalists and providers to push the fact that it is as easy as 1, 2,3 is extremely dangerous, and I feel in ten years’ time there will be a lot of disgruntled direct investors looking for someone to blame and actually they will have no one to blame but themselves.
In conclusion whatever you read DIY investing is only as easy as 1,2,3 for DIY investment experts and they will make mistakes. For new investors to be encouraged to think this way is extremely dangerous and a time bomb waiting to go off. By all means consider going direct but you are playing with your future and if you are not confident to do this, or you don’t have the time to constantly review your plans, then pay the money and get advice – I would argue that this will be the best investment you make.