Opportunity Cost, Value of Time, DIY versus Professional , Financial Advisor, Mutual Fund Distributor

What is Value of your time? How to choose between DIY versus Professional? #samjhojaano EP51

What is Value of your time? How to choose between DIY versus Professional? To achieve various life goals and spend a tension-free life after retirement,   it is very important to save money as much as possible and invest the money in the most efficient way to accumulate funds for each goal. For savings, you need self discipline to cut unnecessary expenses, so that a considerable part of you disposable income remains intact even after spending on necessities.

Investment guru Warren Buffett had said, “Don’t save what is left after spending, but spend what is left after savings.”

However, saving a lot is not sufficient. You have to invest the money saved in such a way that it provides you the optimum return to make your life goals achievable. In other words, you have to make your money work hard for you and generate a supplementary income.

According to Buffett, “Never depend on a single income. Make investment to create a second source.”

So, investment is necessary not only to meet your financial goals, but to reduce dependency on a single source of income and to protect you from financial disaster in case the primary source of income stops abruptly.

Some people are confident that they can manage their investments themselves, DIY (Do-it-Yourself) platforms are for these people. But if you need help in making the right investment decisions, a ‘Managed investment platform’ managed by trustworthy and experienced professional , is right for you.

While, the right charging structure and investing without lock-in structures are important, a good financial professional provides you the following services:

  1. Getting you started on the path to achieving your goals, by developing a proper financial plan of action for you. I cannot stress this enough. Statistically it has been proven that most people left to their own devices, will never ‘Invest money’ or ‘Invest money consistently’ unless pushed by a financial professional, who makes them understand the importance of ‘Starting to invest, early enough in life’.
  2. Making sure, with regular reviews that you continue on the path, till you achieve your goals. (This has very little to do with investment returns). Starting an investment is easy. You don’t need a financial advisor for this. However, the difficulty lies in ‘staying invested’, and ‘not exiting at the wrong time’, for various reasons.
  3. Optimizes The Returns Of An Investment – Now any adviser who sells himself, that he can get a better return is a cheat, because nobody can guarantee better returns, but a good financial advisor can:
    1. Reduce the risk in your investment portfolio, by only suggesting you investments that you understand and you are comfortable with.
    2. Reduce the volatility in the overall portfolio, giving you a slightly easy ride along the way, making things more predictable. Not all types of investments are fit for the average investor, even if they take the shape of an Index / ETF.
    3. Match investment risk and returns to your risk tolerance – how you feel about your investment value going up or down. Each investor has a different attitude towards investment risk. This is very personality driven. Your financial adviser has to choose an investment that suits your investment personality.
    4. Match investment risk and returns to your time scale – The volatility (risk of investment value going up or down) should be the lowest when you need your money back for your important life goal. You cannot take risks with your money, when you need it the most.
  4. Reduce Costs, including tax – They can help you with kinds of investments that you may not normally think about, which give you tax relief or other kinds of tax benefits.
  5. Save you time – They can save you a lot of time, in which you can spend doing the things you like to do, instead of learning how to invest, and manage your money yourself.
  6. Control your investment behaviour – If you are on your own accountable only to yourself, it can be very tempting, and very easy to make bad decisions on your money, in the heat of the moment. When markets are not performing well, you may make a decision without fully thinking it through, and you would have been better off, not doing that. A good advisor can act as a check and a balance against that kind of stuff, and save you a lot of money through costly mistakes …because no one can control the markets, but what can be controlled is the choice of investment and the level of risk you are exposed to.

Watch this Video to understand your value of time per hour worth of your time – 

Do a cost benefit analysis of your time spent and the cost involved in managing yourself? 

If to do it yourself (DIY), you may save the advisor’s fee and earn a bit more by investing in direct plan. But from financial planning to execution to monitoring, you have to do it yourself to ensure that you don’t end up losing your capital invested.

However, DIY will be beneficial, only if you have knowledge of the nitty gritties of financial planning and time to study to upgrade yourself, do research to identify suitable investment avenues and to monitor investments from time to time.

Otherwise, it would be beneficial for you to concentrate on what you may do better and enhance your efficiency to earn and invest more and leave your investments on a trusted advisor.


Leave a comment