Man looking over his investments on smart phone.

Should You Manage Your Own Portfolio?

Sarah Li Cain4-minute read
August 25, 2021

It’s never too early to start thinking about investing – even if retirement seems like a faraway concept. Whether it’s 20 or 40 years away, without a healthy retirement account, you could find yourself in dire straits once you’re ready to retire.Sounds bleak, but it’s true – opening a retirement account and understand the fundamentals for portfolio management will help you yield consistent returns so you can have enough income to pay for necessities and luxuries once you stop working. So how can you learn to invest and benefit from the magic of compounding funds? The truth is, it doesn’t have to be as intimidating as it appears to be.There are lots of resources – including professionals – that can help even the most novice of investors understand their return on investment (ROI).One thing is clear: the sooner you start, the more time your money has to grow.

What Is Portfolio Management?

A portfolio is essentially a collection of your investment assets – think 401(k), IRA and brokerage accounts. Portfolio management is how you (or a professional) would allocate and execute an investing strategy based on your timeline, financial goals and tolerance for risk. In other words, the portfolio manager will select a mix of assets (think stocks and bonds) so you can achieve your goals.

To break it down further portfolio management involves thinking about where your assets are going to be housed, including any taxable and tax-advantaged accounts. This can have tax implications – will you be taxed your earnings now or when you take them out of the account? How can you allocate your portfolio so you can minimize the amount of taxes you pay overall?

It also involves the timeline as to when you want to withdraw money – doing so sooner than later could mean you want to take less risk in your investments. Portfolio managers also need to think about rebalancing, which is how you buy and sell assets to make sure you’re within your target allocations.

While all of the above can sound overwhelming, you can still manage a portfolio by yourself. It depends upon several factors, including your willingness to learn and how complicated your financial situation is.

Are You Willing To Learn About Investing?

There are many free and low-cost options to help you learn about investing. Resources like your local library can house the latest books for beginners and even free classes led by financial professionals. In addition, there are websites and educational resources from brokerage accounts that offer some comprehensive lessons to help you understand investment terms and figure out how to start investing.

It’s perfectly fine to start out on your own – your 401(k) is a great place to start investing since your employer could match your contributions, up to a certain percentage of your paycheck. The important thing right now is to work toward a consistent and disciplined approach, something that only you can do. Sure, a professional can suggest how much to invest, but it’s up to you to transfer the money.

If you’re not interested in diving deep into investing, there are some automated services out there like robo investors. These services help you invest based on proprietary algorithms and will help you automatically rebalance your portfolio based on your goals. That being said, you should still review your portfolio to determine whether your goals have changed or not. Even if you go with a professional, it’s up to you to figure out what your goals are – so you’re not necessarily off the hook when it comes to learning about investing.

Do You Have A Complicated Situation?

Sometimes it’s a good idea to enlist the help of a professional, especially if you have a complex situation. For example, you inherited a few accounts from your father who, turns out, invested in a few businesses in another country. Or you have Bitcoin and are looking for ways to invest it in new Bitcoin or crypto brokerage companies.

The good news is you don’t have totally hand off your accounts to someone to fully manage. You can hire a professional for one-off help or advice on what to do. Maybe you want to hire a tax and investing professional to help you liquidate your late father’s accounts and invest it somewhere in the U.S. Or you work with someone for a few months to learn about Bitcoin investing and take it over yourself afterward.

Navigating complex investing situations can have some major consequences – like owing taxes or losing more than you bargained for. Sure, you can save money by managing it yourself, but in the long run it could be more advantageous to pay for portfolio management services, especially if it’ll save you money overall.

What’s The ROI?

In most cases you can save money by managing your own portfolio, particularly if all you’re doing is sticking your assets in low-cost index funds. It can be a great choice if all you want to do is stick your money in one place for the long term and aren’t too concerned with the swings in the market. That way you can save money in commissions and management fees that come with hiring a professional.

That being said, hiring a professional can be helpful – this person can walk you through tax minimization strategies, how to best allocate funds when it comes to more complex situations and depending on the professional, navigate succession planning. Sure, you can pay a pretty penny for this advice, but think of the cost as an investment, one that can reap major benefits.

The Bottom Line

Understanding the basics of portfolio management can be enough to get started investing yourself. Combine this with starting early, making regular diversified investments can help you build up a sizeable nest egg.

However, just because you understand the basics doesn’t mean you can’t enlist the help of a professional or some type of portfolio management service. Companies like robo advisors and even human financial professionals can help allocate your funds to better suit your risk tolerance and other financial goals.

No matter which option you choose, keep learning about investment portfolio management practices – the more you understand, the more you can be armed with the tools to help increase your potential returns. Be sure to check out our learning center for more personal finance tips.

Remember, everyone’s financial situation is different and it’s best to speak with a licensed financial expert or advisor before making any major financial decisions.

Sarah Li Cain

Sarah Li Cain is a freelance personal finance, credit and real estate writer who works with Fintech startups and Fortune 500 financial services companies to educate consumers through her writing. She’s also a candidate for the Accredited Financial Counselor designation and the host of Beyond The Dollar, where she and her guests have deep and honest conversations on how money affects our well-being.