Column: Should you DIY your finances?

By William D. Winters

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When it comes to managing personal finances, deciding whether it’s best to take a do-it-yourself approach or hire a financial professional is a matter of personal style.

Action-oriented people who like to handle issues in a hands-on way may find the most satisfaction by taking the lead in the management of their finances. On the other hand, those who prefer to sit back and discuss their options with experts before moving forward probably would be more comfortable working with a financial professional. Either approach can be effective, but successful DIYers and financial advisers in the final analysis are operating on similar principles, with an eye to a balanced investing approach, risk discipline and a long-term perspective.

DOING VS. DISCUSSING

Because financial do-it-yourselfers typically like to have an active hand in the management of their assets, they’re the ones most apt to buy and sell stocks as they see fit. They tend to be higher-volume traders, continually monitoring stock market developments, looking for viable, profitable transactions. While markets are generally efficient over the long haul, savvy observers of shorter-term market trends can find value opportunities and capture them with nimble trading.

Ideally, this is still done within the context of a balanced long-term strategy—they’re adding “alpha” to long-term gains and not trying to “beat the market” with shortcuts. Today’s financial DIYers have a high interest in managing their finances, along with the nuances that go into building and maintaining their financial portfolio.

Even so, those who manage their finances typically are better suited to core investing in diversified instruments like mutual funds and variable annuities, perhaps supplemented by more moderate positions in stock options. Picking individual stocks can be profitable, but the diversification provided by funds and annuities is an important risk management element — and stock options provide a way to pursue gains in active management while limiting downside exposure.

DIYers should probably stay away from more illiquid assets, such as non traded REITs — real estate investment trusts — which have complex structures and may be difficult to exit. The DIYer should, as a matter of principle, try to avoid “roach motels” — investments that are relatively easy to get into but hard to get out of.

For people who have less interest in or lack required financial expertise for managing their own money in a hands-on way, the preferred route would be to establish a rapport with an experienced financial adviser. These are often relatively sophisticated people financially who like to discuss their ideas regularly with industry professionals and collaboratively outline strategies for asset deployment before moving ahead. Their preference is for a holistic view of their financial situation and of the various investment markets, where an adviser’s insights are as appreciated by them as much as their ideas are by their adviser.

An ideal relationship for an investor of this type is synergistic with the adviser. The investor articulates viewpoints about preferred markets, investment approaches and risk tolerances and the adviser helps the investor “express” that high-level perspective in a more detailed strategic investment game plan. Advisers are trained to consider a broad range of variables that impact the game plan, from risk management to tax issues to funding of long-term commitments to estate planning considerations. It’s not just about picking winners; it’s about maximizing the ultimate results.

TRANSITIONING  YOUR FINANCIAL STYLE

Transitioning from a do-it-yourself method of financial management to one that involves working closely with a financial adviser or vice versa, can feel daunting, even if it’s the right move. Investors, like anyone else, are creatures of habit and habits are hard to change.

For whatever reason — be it a change in life circumstances, personal interests, or the desire to consider new areas of investment opportunity — when a DIYer is considering a transition to a professional management approach, it’s important to see the change as a process that involves open communication, careful analysis and development of trust. When you’re used to doing it yourself, it takes time to get comfortable handing the reins to someone else, no matter how credentialed or experienced the adviser may be.

Remember, the way your colleagues, friends or family members handle their finances may not be your best approach, even if theirs is successful. Talk with knowledgeable people, ask questions and consider whether, in general, you might prefer to have an experienced hand helping to guide your affairs. In the end, being comfortable with and educated about the management of your finances can give you peace of mind and a workable plan for financial security.

William D. Winters is Hudson Valley managing director in White Plains for Tompkins Financial Advisors, an independent, fee-based wealth management firm with offices throughout New York and southeastern Pennsylvania. He can be reached at 914-946-1277 or by email at bwinters@TompkinsFinancial.com.

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