"Greed and Fear, those two emotions actually have a much bigger impact on people’s personal wealth, rather than technical points of not being able to identify a great company, or seeing when there are problems in the company" - Jean Pierre Verster
I will summarise the main lesson of this article by saying this. If you are a person who is willing to spend hours reading financial education books, staying up to date with the market and news then definitely try manage some of your investments yourself, as you will learn a lot. You will also save 1%-3% on financial advisor fees. One caveat though, is that you will be “hoping” the stocks or unit trusts you select do well most of the time, and might not be appropriate for your needs and risk capacity. For most retail investors out there, the BEST option for investments is to find an asset manager whose philosophy you align with, select one of their Unit Trust/ETF and Rand cost average into that fund. It is that simple. This means, for most people, the best thing you can do is pay monthly amounts into a Unit Trust which has an asset manager managing a portfolio of equities or bonds etc for you.
Practically this means, going online to an institution's website submitting an application for a monthly debit order into one of their Unit Trusts and do nothing else for the next couple of years but pay monthly into a Unit Trust. It is not exciting, but the long term results are often better than had you micro managed individual stocks yourselves. But you are still faced with the problem of making sure you are making the correct financial decision, and whether all your risks are covered before diving into investments. This is why you need a Financial Advisor or Planner. Their role is to educate you and guide you towards your own financial goals in an efficient manner.
Warren Buffett said that anyone with ordinary intelligence can be successful in building their own wealth. Then, what is the point of financial advisors? I can do it myself can’t I? Well not necessarily, the reason being is Temperament.
Put differently, the single biggest contributor to your financial success is your frame of mind, or attitude towards your investments. To be an investor you need a process that you diligently follow. You also need to train yourself to view a 10% loss with the same view as a 10% gain. Often people are happy with a 10% gain but not over the moon excited, yet start freaking out with a 10% loss. Once you remove your own emotions from the process and trust your plan, you can be prosperous.
There are those who typically don’t mind putting money away and understand the importance of spending within their means. Then we also have others who just can’t help themselves but spend their extra cash. This is not necessarily the temperament I am talking about. When it comes to your investments, once you have done your homework, decided on a plan. What do you do next? How often do you change your plan or investment? How much of a loss is too much before I need to cash out? These all contribute to a successful investor and an unsuccessful one. Notice, we have not even gotten into the details of Bonds vs Equities or even which equities. Throughout time, patience is a key metric you need to learn.
3-5 years is not a long term investment! It is difficult to think in today’s world that we would have to sit and wait for 5+ YEARS. But that is the minimum I would say, to invest and hold. Thereafter one can reconsider one’s investment plan.
Bringing in the need for professional advisors. Their job in part is to manage your expectations and temperament, ultimately to educate you as well. Over time you will build up a resilience to the market swings and those advisors will be the reason why you can confidently make losses here or there with the bigger picture in mind and time.
In the investment game, buy and hold mostly beats short term trading, and having a professional guiding you is better than doing it yourself.
