New to Investing

DIY investor checks the share priceIt is easy to make the argument for DIY investing: as headlined in the Your Money section of the Daily Telegraph (15.11.14), ‘Investors: go DIY and save thousands.’  With wealth managers and financial advisers charging anything up to nearly 3% per annum in their stated charges (there are often other costs and trading costs on top of this), charges can swallow up most of the likely income return or yield from an investment portfolio.


But the experts always do better, don’t they?

There may be a few very talented investors who can consistently beat the market but even these are not guaranteed to do so over an extended period of time. On average active professional investors do worse than the market; so why pay for this?

Our contention at IpsoFacto is threefold:

  • The investment future is uncertain and getting the right choice of investments for the current investment environment and your own circumstances (asset allocation) very difficult (although probably the most important decision). But this is as true for the professional as for the private investor: a rigorous mathematical driven approach based on relative value (as we have devised) and sensible diversification can achieve good results at a fraction of the cost of so called professional advice, which is often based on what is largely guesswork.
  • The amount of risk you are prepared to take in your investing is a very personal thing and more than likely can change over time. Getting regular information and advice and keeping control of one’s own investment decisions is vital to this process of managing risk, in our view.
  • Private investors can use our advice to access some of the most talented investment managers through investment trusts or closed end funds, often at much reduced costs versus unit trusts or OEICs, which are the traditional recipients of private investor money.

In any case, it’s complicated, isn’t it?

No one should pretend investing is easy but the practical aspects for the private investor have been simplified greatly over recent years. There are now many online brokers who provide dealing and settlement services at pretty reasonable costs (often single digit pounds per trade); simply google something like ‘online brokers’ and choose the right platform for you.

The great thing about going DIY and using an online broker is that if you want to buy or sell investments, you don’t have to ring up or write in and wait to be told what you get: you just do it, with the price dealt (for investment trusts and equities at least) in front of you on the computer screen.

Obviously DIY is not for everyone; but for those who are interested here is a short checklist of how to approach it.

  • Decide how much you can invest for the long term (at least five years) taking into account income, outgoings, debt, other assets and contingencies. If you need cash in the short term, it is usually better to keep it in a bank account.
  • Decide on your investment objective in terms of income or capital gain and risk tolerance (which may be a function of age and level of assets).
  • In considering risk we strongly advise looking at the totality of your assets and how they are invested; if, for example, you already have a pension fund invested largely in shares, then you may want to reduce the amount of risk you are prepared to take on in new investments.
  • Find an online broker whose charges and service suit your circumstances.
  • If you are investing cash from scratch (ie. not from an existing portfolio), consider investing in chunks over a period of time, to minimise the risk of investing when markets are too high.
  • Hopefully, sign up to IpsoFacto membership and choose from our recommended portfolios, according to your circumstances and risk appetite. We will then guide you with regular updates and any changes to our recommendations, giving you the best chance of investment success.