Blogs & Comment

The price of advice

A friendly broadside against do-it-yourself investing.

(Photo:  Steven Puetzer/Getty)

This column is dedicated to helping individual investors make better investment decisions. I also strive to find fresh topics, so you won’t tend to find me writing here about what is so well covered elsewhere, such as the basics of diversification, the magic of compound interest or DRIPs. There’s not much I can add on these subjects that you don’t already know.

I do on occasion go the do-it-yourself (DIY) route versus using an adviser, but I try to be non-committal on going one way over the other. It still amazes me how so many have adopted the DIY method over the past few years, and I’m not convinced that every one of them has the stuff individually to manage their investments better than a professional.

Sure, some do just fine without the extra advice, and the saving on commission costs for these people outweighs the incremental return a broker might add. But I’d be willing to bet the number of net winners going the DIY route is smaller than the total that have elected otherwise.

For my part, I still use a full-service broker. Despite my experience, or perhaps as a result of it, I like getting that second opinion on what stocks or bonds I’m interested in buying. There are other tangible benefits to this sounding board: on more than one occasion my adviser and I have concurred on the stock in question, but his advice was to wait a few days before I bought.

“Right stock,” he said once, “just the wrong day to be buying it.” That time we waited four days before I bought, and in those four days I saved a lot more on the stock price than I was charged in commissions. It’s hard for a do-it-yourselfer to have an ear so close to the ground that one can sense so well the mood of the market that day.

Having access to lots of information on the Internet is not the same thing as good steering from someone who is right in the thick of things. If you’ve ever worked in a large brokerage office, you’ll know that the mood around the bullpen on some days is very different from what it is on some other days, and that can give you an idea on how the whole market feels that day. That alone can save you some money.

The benefits I get from using an adviser are also sometimes less tangible. My guy keeps his eye on my diversification, and will caution me when I over extend myself in one area or another. I also sometimes get a tax tip or two that I wouldn’t have thought of on my own. On balance I think I’m ahead from using an adviser.

But that’s me, and I would never presume to say that what’s right for me is right for everyone else. I’m sure there a lot of people who previously use a broker before going the DIY route because they weren’t satisfied with the service. More often than not that’s because they didn’t have an adviser; all they really had was a salesperson. If that’s all they had, they might well be better off on their own. This is not to denigrate the brokerage industry in any way: most of the brokers and portfolio managers I know are very good people, and care deeply about their clients. But it’s also true that there are some pure salespeople out there too.

If you go the DIY route, try this one thing at a minimum: look at your holdings not as a collection of individual investments, each to be assessed individually, but instead as a portfolio, as a sum of more than its parts. And whether you go the DIY or the adviser route, I’ll do what I can here to help. Good luck!