My Take On The DIY Debate

Since wampa put the debate full front and center Id like to officially throw in my take on the idea. I think wampa brings up some good points that I had overlooked. But, although a few of you think his my alter, trust me when I say we do not agree on everything.

First thing, I do think it is possible to manage your investments on your own and be successful at it. After all anything is possible. In my opinion in order accomplish this feat, you must be willing to dedicate a sizable portion of everyday to your portfolio and the news that is relevant to it. I have known some DIYers to spend between 3-6 hrs a day on this. Probably about right.

If your are not willing to put in the neccesary time, if you already have a full time job, family, and other major time constraints then do yourself a favor and entrust your money to a financial advisor who does this everyday. You will be better for it then trying to do it half arse on your own. More on my recommendations about FA's later.

If you are doing the neccessary legwork on your portfolio, and have found competent sources for your financial information(tigerdroppings isnt one of them) then you may be able to do this successfully without the aid of an advisor. Just do not get so arrogant that you think you can predict the market.

I want everyone here to admit something. You are investing to hopefully make yourself wealthy one day. If your doing it on your own, you are probably starting with a modest amount of money. Say 10,000. The stakes are lower and who wants to pay fees on the little youve been able to save so far, right?

Well lets say you are successful at this, and your nest egg grows to 100k or even a million. I would argue that now your stakes are somewhat higher.

Now throw in an inevitable market correction of say 20%. On your 10k you would lose 2k. That stings, but you can recover from that. Now figure your million loses 200k in the same downturn...That would ruin anyones day. May even cause a few of us to get emotional...who knows maybe even cause you to make poor decisions on your portfolio based on fear instead of fact.

Heres my point. If you are successful enough at the do it yourself game, then eventually it becomes prudent for you to "hire" an advisor to help you manage it.

Manage what? That depends on you. Some want to create trusts and living wills, others want to sheild themselves from taxes, some still want garuantees on their money. The list of wants and needs can be long, and even the most savvy stock guru can need help in other areas.

Who should I "hire"? From what I gather on this site 99% of you thinks that the people in my profession are either dishonest or incompetent, or both. I can only assure you that that assertion is completely untrue. But for the wary investor there is a way to protect yourself. In my opinion there are two classes of advisors. The ones that are Certified Financial Planners(CFP) and the ones who are not. That simple. Its like the difference between a bookkeeper and a CPA.

If I were in your shoes, when looking for an advisor I would insist on a few things:

1. That the advisor brings something to the table. I have clients who are very hands off, and other who are very hands on.

2. That you tell the advisor in no uncertain langauge what your expectations are.

3. That you expect the advisor to earn his fee. No free lunch. If they dont add value, then find someone who will.

4. That your advisor is a CFP, or at the very least is in the process of obtaining one. It takes about a year and a half of intense studying to be able to sit for the test, and well over 50% still flunk it. It is a true litmus test of quality and knowledge.

You can only gain with a competent advisor on your "staff". I know personally when it comes to difficult questions I employ as many as a dozen experts, analysts, and home office personnel to consult with. I am OCD about getting it right. Sometimes with this, you dont get a second chance.

You eventually will come across an issue that you need help with. It could be setting up a 72t on your IRA. Getting some info on the possibility of a bond of yours might fail. A better explanation of a Variable Annuity and its benefits, or the ability to watch out for terrible investments like an index annuity. It might be something as simple as a second opinion on a stock idea.

Knowing the resources I have available, and the lack thereof in comparison for the DIYer, I shudder at the thought of any of you doing it 100% start to finish on your own.

This is one of those things where the more you know, the more you realize how little you know.

No General goes to war alone, but instead surrounds himself with an army