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Author: Don Obrien

Do I need a financial adviser to invest in MFs or should I do it myself?


I am 35 years old, and have built a sizeable corpus by investing consistently and in a disciplined manner over the past 10 years. I was looking for investment advise but my friend, who has been investing on his own, told me that advisers charge massive commissions and add little value. He said similar results can be achieved by doing research on my own and following online articles/videos. This has put me in a dilemma. What should I do?

–Anuj

Investing, whether it’s do-it-yourself (DIY) or adviser-led, is never easy. It is easy to go online and invest in the best funds, it’s even easier to miss out on the consistency in investing and following the path during tough times, which is what contributes to long-term wealth creation. Given where we are in the market, it always builds a sense of self-attribution bias in terms of a DIY investor crediting himself more than giving credit to the bigger factor—i.e. the hand of the market. One needs to be aware that many mutual funds underperform the benchmark while 90% of stock-picking underperforms the index (based on a study).

So before venturing into DIY investing, you need to ask yourself whether you have the bandwidth as well as passion to periodically research your ideas and rebalance based on various parameters.

For a DIY investor, if you are starting out, you need to be aware of the various asset allocation rules and risk management practices. Because risk always builds in the bull market but materializes in the bear market. So, if let’s say you are biased towards a certain stock/fund and you build up a massive concentration in the portfolio, then should there be a temporary stock/fund specific correction, you will have to have the stomach to see your overall portfolio/life savings down by 30-40%.

Middle Approach: One can create 2 different portfolios altogether wherein 20-50% of the corpus-based on an individual’s appetite can be invested through a DIY approach whereas the balance can be invested through handholding by an adviser. One must keep a very mutually exclusive approach and towards the end of a three-year period, very unemotionally compare both the portfolios in terms of performance, the effort put, and costs. If the DIY approach is delivering similar or thereabout returns compared with post-fees, adviser-led returns but at the cost of the enormous amount of time and bandwidth, then you need to ask himself whether it is worth investing on your own, whereas that time could be utilized for focusing on your own profession and honing your skillset.

Thus, there are no easy answers. But asset allocation and risk management can help weather many storms—be it in terms of internal ideas and strategies or external market turbulence.

Tarun Birani, is founder and CEO of TBNG Capital Advisors. Queries and views at mintmoney@livemint.com.

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