Building Your Own Stock Portfolio vs Hiring A Fund Manager: Pros & Cons discussed
The stories you hear about people earning their first million through stock trading is true. Investing in the stock market is exciting and brings hefty financial rewards to many traders. It is no wonder that many affluent young professionals are considering owning stock portfolios too. However, the nagging question is on whether you can build it on your own or hire a fund manager instead.
Build your own stock portfolio or hire a fund manager
If you’re enthusiastic about investing and participating in the Singapore stock exchange, you should know the pros and cons of building your own stock portfolio or delegate the tasks by hiring a fund manager.
TJ Tan, CFA, DCG Capital, finds that there are both upsides and downsides to both. “Building your own portfolio takes hard work to control impulse to over trade, and it takes a lot of time and effort to research and select portfolio. The portfolio may also underperform. However, it is a rewarding hobby for those inclined.”
Hiring a fund manager isn’t always a breeze either. Tan notes that it will take time to find people you trust to steward your money. “It’s not about finding someone to make money. It’s finding someone you trust when they invariably suffer periods of losses,” he explains. “Homework has to be done to know whether the fund manager has a long enough runway to stay in business.”
1. Trading skills and competence
The first obvious reason why it is advantageous to hire a fund manager is your lack of trading skills and competence. Fund managers or stockbrokers do it for a living.
The stock market is a fertile ground to plant the seeds of wealth. However, you need to learn the rules of the game and have a good grasp of the market before you can perform trades yourself.
2. Sound and meaningful financial advice
All you need to discuss with your fund manager is your level of risk and financial goals for investing in the stock market. A plan or investing strategy which they believe will help you achieve your financial objectives will be crafted.
Most fund managers are updated about the market trends and price movements. They’ll be in a better position to choose the stocks that will comprise your stock portfolio.
3. No need to do research work and analysis
You eliminate the formidable task of doing the research work yourself. A fund manager basically does the fundamental or technical analysis depending on which method is applicable.
4. Save time and energy
Building a stock portfolio on your own requires a considerable amount of time and energy to manage and monitor your portfolio. If you don’t have the luxury of spending long hours, then hiring a fund manager is your only recourse.
You also need to be proactive in dealing with changing market conditions and contending with market volatility. The value of your stock investment will diminish if you’re not on top of the situation. Having a fund manager would at least prevent that and not miss out on buying or selling signals.
5. No emotional decisions
When you’re managing your own portfolio, there’s a tendency to overreact and make emotional decisions. Remember that the stock market is devoid of feelings. It’s either you win or lose money depending on your trading strategies.
Even if losing money is an emotional issue, you can’t let emotions rule your trading decisions. The responsibility of ensuring winning trades rest with your fund manager.
1. Lack of control
Because you still need to acquire trading proficiency, you are essentially handing over control to your fund manager. That’s the main drawback of hiring one.
It would be good to hire while you’re in the learning curve process. But once you have gained the confidence, you can do the trading yourself. You would have better control of your stock portfolio.
2. Your best interest is not top-of-mind
Apart from completely relinquishing control to your fund manager, chances are they also don’t have your best interest in mind. Unlike if you’re building your own stock portfolio, your priority is to preserve and grow the value of your stock investment.
The problem deepens if a conflict arises with your fund manager. Some of their decisions might not benefit you. Thus, your trade losses can compound not from your own doing.
3. Fees eat up on your profits
Other stock market investors prefer to build their own stock portfolio because hiring a fund manager can eat up on profits. Apart from the fees and mandatory government taxes imposed on trade transactions, you pay management or broker fees.
Your potential earnings can also be depleted if you’re dealing with a fund manager on an income-sharing basis. The more fees you can save on, the higher would be your profits. Besides, a fund manager will still be paid regardless of the outcome of your stock investments.
Self-trading investors would rather take on personal losses and learn from preliminary trading mistakes. Over time, you’ll not likely to repeat mistakes and make successful trades without having to pay fees or share profits.
4. Poor choice can lead to financial disaster
Picking a fund manager is also a risk. Advisors will not sell themselves short. They always promise the moon just to induce clients to sign up. Thus, you need to be extra careful in selecting a fund manager.
There are horror stories about investors who gave their fund managers total fiduciary duties and eventually lost their entire investments. There’s a proliferation of con artists in the financial industry preying on unsuspecting clients.
Granting you found a trustworthy fund manager, it’s not always certain he’s capable of bringing in the desired results.
A fund manager should treat investors equally regardless of portfolio size. Keep in mind that you’re hiring a fund manager to grow your investment and build wealth.
However, if the fund manager has the habit of rendering preferential treatment to investors with larger stock portfolios, then terminate the services. You are better off doing it on your own than having a fund manager who will discriminate your investment in favor of another.
Chart your own financial destiny
Hiring a fund manager is the sensible thing to do when you want to build your stock portfolio. You need valuable expertise to help you draw up a stock investment plan that would meet your needs. But you also have to think long and hard about entrusting your money to someone other than yourself.
Several online tools and resources are available if you want to learn the basics of stock trading. Further, you can check out online investment platforms that charge affordable fees. When you have exhausted and reviewed all available options, the final decision is yours alone to make.
Tan from DCG Capital offers a few key things that investors should look out for. For investors who prefer to hire a fund manger, Tan emphasises that is it crucial to check the alignment of interest between the fund manager and the client. Regardless of whether one chooses to trade independently or with a fund manager, he further advises, “Stop allocating to stocks or funds when you fail to sleep well at night. You should prioritise peace of mind over anything else.”
Hiring a fund manager is wise but only as a temporary solution. The only way to eliminate all fears and anxiety is when you are in complete control of your stock portfolio. You can chart your own financial destiny and succeed if you are truly determined.
ZUU Investment Disclaimer: The information given above is based on our experts’ field of expertise and their own personal experience, and should not be relied on or construed as financial advice. ZUU online recommends that our readers take these pieces of advice as a starting point, to research and then assess the merits of this advice based on their own financial needs, investment goals, and risk tolerance.