One of the questions many people ask themselves as they look at administration fees and commissions is this: what if I were to manage my own investments? After all, when you add up how much of your money goes to pay someone else to manage it for you, it can seem like a good idea to just take it over. But it isn’t always a piece of cake to manage your own investments. How well you do, and how much you actually save, depends on factors such as how much time you have, your risk tolerance and how much you have in your investment portfolio. About’s Joshua Kennon offers these helpful questions that can help you figure out whether you are ready to manage your own investments:
- Is your framework wired for investing? Some of us think in investing terms better than others. The idea is to carefully consider whether you are accustomed to making deliberate decisions based on technical information, or if you rely on emotional decision making. One is not better than the other in most cases, but the ability to use technical and fundamental analysis in making decisions is important to investing.
- Do you understand how businesses work? Are you versed in financial terms like cash flow and aggressive accounting? If you don’t understand them now, find out about them, and how they could affect a company’s stock. Only after you have an idea of businesses and stock work should you manage your own investments.
- How is your risk tolerance? You have to understand risk, and be able to tolerate it well to manage your own investments. This includes your emotional ability to handle the risk of losing money, as well as your financial ability.
- Do you have the time? It can be time consuming to manage your own investments. You have to do research, balance your portfolio and take the time to make informed decisions.
It isn’t all or nothing, though. Companies like Fidelity, T. Rowe Price and Vanguard allow you to mix it up a little. Programs that allow you to choose your own funds and participate in managing them are in between. The companies themselves manage the funds, but you choose the funds that you think fit your needs, and how much you want to invest in them. And the fees are lower than those charged by more involved financial planners and asset managers.