It is now widely known that in order to financially secure our future and achieve our financial goals, we must save and invest our money judiciously. The key word here being, judiciously. When it comes to making investment decisions many of us choose to adopt a “do it yourself” approach. We tend to scrape the surface in terms of gleaning the right information and often resort to taking advice from friends and well-wishers. However, when it comes to personal financial management, a DIY approach might not always be the best. This could be for any or all of the following reasons:
Individuals are often ruled by emotions and biases - As individuals, we have several biases that impact our ability to make optimal investment decisions. Many of us have heard the maxim "buy low and sell high". Yet, when markets fall and give us an opportunity to buy, we run and when they rise and give us an opportunity to book profits, we continue to stay invested until the tide turns. Instead of objectivity and discipline, we let our emotions and biases govern the investment decision making process.
Information asymmetry - The investment landscape is constantly changing with asset prices responding to the changing macro and micro-economic environment. This means that investments that might have been suitable at one point in time might no longer add value to your portfolio. Add to that, there are also new products with varying risk-return metrics that are launched on a regular basis. It is not always possible to be aware of the myriad investment options in the market and keep track of the various developments that can impact your portfolio.
Lack of expertise - In order to meet your financial goals, it is imperative that you build a robust and well-diversified portfolio. This entails determining your own risk profile, creating an asset allocation strategy that adheres to your risk-return parameters, investing in instruments that meet your asset allocation objectives and rebalancing in response to the changing market environment. Doing this optimally and consistently can be challenging and generally requires expert inputs.
A paucity of time - Creating and maintaining an investment portfolio requires a commitment of time and resources. It cannot be pursued as a hobby since your future financial well-being is contingent upon how well you manage your investment portfolio. Having said that, most of us are saddled with balancing our work and family commitments, leaving us with very little time to manage our portfolio.
The good thing is that all of the above challenges have a single solution ie. a financial advisor. A financial advisor can help you by creating customised asset allocation and investment strategies that can guide you on your investment journey and help you achieve your financial goals. A good financial advisor can become your trusted partner and handhold you during volatile times when you might be inclined to make sub-optimal investment decisions. Additionally, advisors are generally experts in their field and are knowledgeable about the various investment products and the developments in the investment landscape.
