Should You Handle Your Own Investments or Hand It Over To A Fund Manager? 

When it comes to our money, we all want to make the best decisions we can.

That’s why so many of us are drawn to the idea of managing our own investments. After all, who knows our financial situation better than we do?

But is managing our own investments really the best option for us? Or should we hand it over to a fund manager?

In this blog post, we’ll explore both options and help you decide which one is right for you.

The Benefits of Handing Over Your Investments To A Fund Manager

There are a few reasons why you might want to consider handing your investments over to a fund manager.

1. They Can Have More Experience Than you

When it comes to investing, experience counts for a lot. Fund managers have years of experience managing other people’s money. They know how to make the right investment decisions and how to protect their clients’ money from market fluctuations.

2. They Have Access to Better Information

Fund managers have access to information and resources that most of us don’t. They have teams of analysts who track the markets and identify opportunities. They also have relationships with other market participants that give them insights into what’s happening in the markets.

3. They’re Professional Investors

Investing is their job, which means they’re much more likely to be successful at it than the common investor. It’s not something they do on the side; it’s what they live and breathe. As a result, they’re likely to be much better equipped to handle the ups and downs of the markets.

Having said that, however, there have been many cases where individual investors have outperformed professional fund managers – and that’s because of the various advantages we have over managed funds (I’ll talk more about this later).

The Downsides of Handing Over Your Investments To A Fund Manager

Handing over your investments to a fund manager can be a great way to get your money working for you if you’re unsure yourself of what to do, however, there are also some downsides to consider.

1. They Charge Fees

The most obvious downside is that fund managers charge fees for their services. These fees can eat into your profits and reduce your overall returns.

To put things into context, funds will normally charge about 2% of your invested capital as management fees on an annual basis. This might not seem like much, but you have to consider that these fees are charged regardless of whether your holdings make a profit or not. On top of that, many fund managers will charge a 20% ‘carried interest’ fee (also known informally as carry), meaning they’ll take a 20% portion of any profits your holdings make.

This may not seem like much at first, but considering that the average return for stocks is around 7% per year, it means that a fund manager would need to generate annual returns of around 9% just to break even. That’s a tall order.

2. They Don’t Always Get It Right

Another downside is that fund managers don’t always get it right. They’re human after all, and they make mistakes just like the rest of us.

There have been plenty of cases where fund managers have made bad investment decisions and lost their clients a lot of money. In some cases, these mistakes have been so damaging that investors have been forced to pull their money out of the markets entirely.

3. You Have No Control Over Investment Decisions

Not everyone is suited for a hands-off approach to investing. Some people prefer to have more control over their money and make their own investment decisions. If you’re the type of person who likes to be in the driver’s seat, then a fund manager may not be right for you – especially because a lot of their decisions can be driven by how other investors in the same fund are reacting.

On top of that, fund managers are not allowed to hold more than 5-10% cash under their mandates. This means they must have at least 90% of their funds invested – even if they can see a market crash coming. As a result, you could end up being fully invested in the markets just before a big crash. This is something that happened to many investors during the 2008 financial crisis.

4. They Have a Different Motivation Than You

The final major downside is that fund managers have different motivations than you. They’re in it to make money for themselves and their clients, but they’re also under pressure to perform. This can sometimes lead to them taking more risks than they should in an attempt to generate higher returns.

The Benefits of Handling your Own Investments

Now that we’ve looked at the downsides of handing your investments over to a fund manager, let’s take a look at the benefits of handling your own investments.

1. You Can Have More Control Over Your Money

If you’re the type of person who likes to be in control, then managing your own investments can be a good option. You can make your own investment decisions and choose the investments that you’re most comfortable with. It also means at any time, you can withdraw from investments you don’t think are going to be doing great, or if you anticipate a potential market crash.

2. It Can Be More Cost-Effective

When you manage your own investments, you don’t have to pay fees to a fund manager. This can save you a lot of money in the long run and help you to grow your wealth more quickly.

3. You May Be More Engaged With Your Investments

Some people find it more difficult to stay engaged with their investments when they hand over management to someone else. When you manage your own investments, you’re likely to pay more attention to what’s going on and make sure that your portfolio is on track.

The Downsides of Handling Your Own Investments

There are also some potential downsides to managing your own investments, which you should be aware of before making a decision.

1. You Might Not Have Enough Experience

Investing takes time, experience, and knowledge to do it well. If you don’t have enough experience, you might not make the best investment decisions and could end up losing money. This is where it pays to have a good mentor to show you the ropes. Unfortunately, however, there are many unscrupulous ‘gurus’ roaming around the Internet nowadays, and it’s difficult to know who’s truly got your back.

2. You Might Not Have Access To The Same Resources

As we mentioned earlier, fund managers have access to resources that most of us don’t – like teams of analysts and relationships with other market participants. This gives them an advantage when it comes to making investment decisions. Thankfully, however, there are ways to access their activity information to give you some insight and confidence into your own investment decisions.

3. You Might Not Be Able To Stay Disciplined

It can be difficult to stay disciplined when you’re managing your own investments. There’s a lot of emotion involved in investing, and it can be easy to let your emotions get the better of you. This can lead to impulsive decision-making, which can end up costing you money.

Having said that, by following a few simple rules such as position sizing and diversification, you can more easily stay emotionally detached from your trades and stick to your investment strategy.

What’s The Verdict? Invest on your Own or Hand It Over To Someone Else?

So, what’s the verdict? Should you handle your own investments or hand it over to a fund manager? Ultimately, there is no right or wrong answer – it depends on your individual circumstances and preferences.

If you’re comfortable with taking on more risk and have the time and knowledge to do it effectively, then managing your own investments might be the best option for you.

On the other hand, if you’re not as confident or don’t have the time to commit, then you could consider handing things over to someone else.

My suggestion, however, is to give yourself a chance first to learn and try it out on your own. If you find that it’s not for you, then you can always hand over the reins to someone else later on. At the very least, you’ll be aware of what your fund managers are doing (or more importantly, not doing) with your hard-earned money.

This blog is a great start with that journey – in fact, that’s why I started it. As someone who previously managed a fund on behalf of others, it eventually came to a point where I realised that the best way to help others wasn’t to manage money on their behalf, but rather, to teach them everything I know so they can do things themselves without needing to rely on someone else.

If that resonates with you, and you’d like to at the very least learn how my investment process works and give things a go on your own before deciding whether or not to hand things over to someone else, then I’d like to invite you to our free 90-minute online Masterclass.

It’s a jam-packed 90-minute class, and in it, I’ll show you how I invest and trade in the stock market in a way that allows me to:

  • only spend an average of 30-45 minutes a day researching and executing trades (sometimes more if there are more opportunities)
  • not risk my hard-earned life savings by using leverage
  • not have my capital gains profits all eaten up by brokerage or fund management fees
  • and perhaps most importantly, still keep up with algorithms, robots and artificial intelligence in today’s age

We’ll walk you through everything from how to choose the right stocks to invest into risk management tips that will help keep your portfolio healthy.

If that’s something you’re interested in, click here to register for the next Masterclass.

Hope to see you there 🙂

Terry

You may also like

Disclaimer

Effective Trading Solutions Pty Ltd trading as theFreedomTrader.com (ACN: 160 101 959) (“theFreedomTrader”) is registered in Australia and is a Corporate Authorised Representative (CAR No. 1267698) of Australian Financial Advisory Group Pty Ltd which is the holder of Australian Financial Services Licence No. 475300). All material provided on this website is general advice only and does not take into consideration your personal objectives, financial situation or needs. You should seek independent financial advice and read the relevant disclosure statements prior to acquiring our services. TheFreedomTrader.com does not operate as a formal training provider and is not registered as a training provider.