Should I Invest Through a Fund Manager or Invest Myself? - Knowledge Sharing Series

Should I Invest Through a Fund Manager or Invest Myself?

Today we have never had so many opportunities to invest around the world in so many things. As Fred Dagg did say “we don’t know how lucky we are”. This does however bring its own challenges that we must manage.

One decision that we see many people facing is whether to invest directly or to engage a broker to manage their investment for them.

This short blog post will work through the pro’s and con’s of both options so that you can choose the best that works for your situation.

DIY Investments or Assisted, How to Pick Through the Choices

If you are a new to all this, give DIY investing a go!

If you are a newbie and with investing the key thing is to just start. Kiwisaver is a great place to begin, and most Kiwi’s already have this underway. What is less common however is that people have their Kiwisaver in the appropriate split of funds for their long-term objectives (conservative, balanced, and growth funds).

Assuming you have sorted out your Kiwisaver already, grab your driver’s license, and your phone or PC and in 5 minutes you can have a Sharesies or a Hatch account. Transfer money through internet banking and in 24 hours you are good to go. The key here is to start small, with an amount you are comfortable in ‘learning’ with.

Pick a share or fund in NZ, Australia or the US and buy a “unit” or just a dollars-worth of a unit. Depending on the market and timing of weekends and holidays you might be done in minutes or just a few days.   

To some this is the beginning of their hands-on investment journey…and it is a journey. To others it is too hard, time consuming, stressful etc. The good news is that there are multiple answers for those in the ‘too hard’ basket as well.

The pros of DIY investing are:

1.       Control of choice with your investments.

2.       A new set of skills to home in on and grow over time.

3.       Low fees.

4.       Reasonably simple investment and taxable income statements.

5.       Total control over whether you want to be a share trader or a long-term investor.

6.       Easy to use user interfaces.

The cons of DIY investing are:

1.       Limited choice of shares to what your online broker platform offers.

2.       Your ability to make investment decisions is limited to your knowledge.

3.       Large time investment to learn the in’s and out’s of share investing.

4.       You have to do your own FIF and other complex tax calculations if you fall under that regime.

What To Do If DIY Investing Is in the ‘Too Hard Basket’

There are a huge amount of investment firms and brokers that, for a fee, will invest your money for you. This can be a great answer for those in the ‘too hard basket’ when it comes to DIY investing. Investment firms can cater their investment of your money based on your chosen risk profile and long-term objectives.

The pros of investing through a broker or fund manager:

1.       Capitalizing on professional knowledge that know what they are doing.

2.       Ability to cater your investment based on an overall risk profile.

3.       Decreased admin and time commitment.

4.       Access to more companies to invest in than your typical online broker such as Sharesies or Hatch.

5.       Will complete complex tax calculations such as FIF on your behalf.

The cons of investing through a broker or fund manager:

1.       This can be very costly.

2.       Less control over individual share purchases or holdings you are interested in.

3.       Mediocre to poor investment and taxable income statements generally.

How To Make Your Decision

You might like to consider these questions:

1.       How streamlined do you want your administration to be?

2.       Would you like a tax break with that?

3.       What level of investment advice do you want?

4.       What is your next stage, and are you set up for that?

How streamlined do you want your administration to be?

Your options here range from an annual PIE income statement at the simplest end, through to multipage tax reports from the Wealth Managers (Craigs, Jardens, etc), to getting every dividend advice and corporate action mailed or emailed to you to make of what you will.

You need to choose which level of involvement fits with your talents, enthusiasm, and your choice of how to spend your time.

Would you like a tax break with that?
The PIE Regime that was setup to make Kiwisaver simple also allows you to get a tax break currently of 5% if you are in the top tax bracket. That tax break rises to 11% if you are one of the few paying the new 39c tax rate.

What level of investment advice do you want.
We see all the extremes. We see DIY seasoned investors who run companies large and small. We see smart people who get advice around which asset allocation is appropriate for their goals and stage, and then do the implementation themselves. We see people who want the full ride, with asset allocation, stock picking, custody and reporting all done for them. Some even get monthly updates for their piece of mind.  There is no one answer. It is about what is right for you and has to be a balance of your time, talent, and enthusiasm.

One of the fund managers who does a lot of public speaking makes it clear one of their roles is to stop you doing anything stupid!

What is your next stage, and are you set up for that?
This is a tricky one. We work with people all through their life cycle, and beyond.

Many years ago, I saw a little investment record book put out by some worthy organisation, there was a little saying inside which read along the lines of: 

It is very nice to leave some wealth to others.
It is even nicer to leave a record of where to find it.

So the challenge then is to be realistic around your age and stage and to think what the next age and stage might be. I am sure we have all heard horror stories of untimely deaths or dementia and record keeping messes. This becomes difficult with uncertainty around the investment info and a bunch of relationships both in NZ and overseas for an executor to manage. Many people put trusts in place, have a number of trustees involved, and make the awkward personal transitions as smooth as possible for those left behind.

How Can We Help?

We work alongside our most successful clients to determine where they are on their professional and personal journey. We help our clients complete their long and short term wealth plans and discuss as part of that what sorts of investment avenues might best suit their situation.

We also work to ensure that each client’s structure is set up with their objectives in mind, whether this be planning for the next generation, for clients to be taken care of through retirement, changes of stages, or how best to optimize for tax.

If you found this article interesting and want to know more or would like to have a review of your long and short term objectives, please feel free to contact us today.