Mike Coady - Coady Performance Group

Further to my recent blog “Why relationships are so important to financial advice” I believe it be equally important that we understand the difference between direct investing and active financial advice.

Many investors prefer to make their own investment decisions, but this is not always the best way to approach handling your portfolio. There are benefits to direct investing; you control your own research, you have complete control over your investment options, and if you win or lose, it is your personal gain or loss. However, not everyone has the financial knowledge or in-depth market insight to understand how their investments may impact their finances over the long term.

Here is a look at the ways direct investing versus taking active financial advice can make a difference.

  • Market news – not everyone has the time to keep up-to-date on changes in the market. When making your own direct investing decisions, news can have an impact on your portfolio distribution. Investors who seek out active financial advice are more likely to hear about news that impacts their investments than those who wait for the news to break in the local or preferred newspaper
  • Portfolio balancing – at different times in our lives, we need to evaluate our portfolio and ensure it is still balanced based on our risk threshold, our investment objectives, and our tax situation. Having the ability to have a professional evaluate your portfolio at various times to ensure you are on track is the best way to keep your portfolio performing as well as possible. Those who elect to manage their own portfolios are often uncertain what types of investments are best used at different points in their investing plans.
  • Risk and returns – generally speaking, most investors do not understand all of the risks associated with a specific investment. Each investment option such as stocks, bonds, and various funds come with their own risk. While no investment is risk-free, understanding the more intricate calculations that go into determining risk is something a qualified investment adviser can help with. For most investors, trying to calculate risk is not always an easy process.
  • Tax implications – nearly every financial transactions carries with it some type of tax implication. Expats, for example, could find themselves paying thousands of pounds more annually in tax liabilities if their portfolio is not properly managed. In some cases, taking a financial loss can be beneficial to help reduce a tax burden, but for those who are managing their portfolios without the guidance of an adviser, they may not know when to take advantage of these opportunities.

There are many people who decide to manage their financial accounts without the assistance of an adviser. For some, this will work out fine while others may discover far too late they are not coming close to meeting their goals.

Naturally, an investor can potentially suffer losses after accepting advice from an adviser but in general, advisers can review the investors overall portfolio and make recommendations to minimise losses while maximising returns.

For those investors who plan to invest in single funds or only buy the safest of investments, self-managing may work.

However, for most investors, a financial adviser who understands their financial goals and their overall financial health can provide greater rewards in the long run.

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Blog published by Mike Coady.

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