In recent years, it has become quite common for individuals who work outside the field of financial services to manage their own investments, rather than hiring someone to do it for them. Mobile apps with fun names designed to make it easy to manage your own investments are all the rage at the moment. If you are thinking of heading down the path of self-managed financial investments, here are some points you might want to consider before you tap ‘install’ on that app.
Pro: no brokerage fees
When you put your savings in a traditional bank and ask a financial advisor to create an investment portfolio for you, you will be charged a brokerage fee for this service. While the amount you will be charged and the ways the fees are structured vary from firm to firm, these charges tend to average around 1% of the capital being invested—which, if you’re lucky enough to have a substantial sum to invest, could translate to quite a lot of money.
By contrast, most online brokers—such as the aforementioned apps—operate on a commission-free trading model. They are still commercial companies, however, and must make a profit to survive, so you should do your homework and make sure that this profit is not made through unethical means such as selling your data to third parties.
Con: the stock market can be very hard to understand
Not to put too fine a point on it, there’s a reason why the provision of financial services is its own specialized field, where professionals spend years gaining both training and experience just like in any other industry. Many financial advisers have expressed concerns that inexperienced traders might be lured by investment apps into thinking that stock trading is an easier and less risky activity than it actually is. For example, did you know that there are at least 12 different types of stocks?
Investing in cryptocurrencies such as Bitcoin or Ethereum works differently again, and while many consider it a very worthwhile alternative to stock market trading at the moment you still need to do your research so you know what you are getting yourself—and your capital—into.
Pro: you can easily keep track of your investments
When you hire a financial adviser to manage your investments for you, you may only be given detailed financial statements a couple of times a year. While you can always contact your adviser if you want more regular updates, keeping track of your investments can easily become very time-consuming. With a centralized investment app, on the other hand, that same information will be available to you with a few taps on your phone.
Con: beware of the dopamine hit
Having such easy access to a way of investing your money might potentially trigger gambling-like behaviors, according to some experts. If you know you have a hard time setting limits for yourself, it might be best to employ somebody else to manage your investments for you.
The bottom line: do your homework
Ultimately, there are advantages and disadvantages to both traditional and self-managed investment portfolios. Do your research before you choose one route over the other and remember that your capital is always at risk when investing.