Taking a DIY approach to life can help you to save money. Whether it’s a job around the house or sidestepping a travel agent, there can be economies to be made if you’re prepared to do the work yourself.
Sometimes, however, this can backfire.
New research by Aviva has revealed that almost half of all motorists have botched a car repair job by trying to do it themselves, costing them an average of £803 in the process.
Hazel Johnson, director of Motor Claims at Aviva, says: “While motorists are understandably trying to save money, repairing or maintaining your car incorrectly can be a costly mistake to make […] If you’re ever unsure, it’s always best to seek professional help in order to avoid paying potentially hundreds of pounds to correct a DIY repair gone wrong.”
Financial planning is another area where going it alone can lead to trouble further down the line. While you’ve never had access to more information when it comes to managing your affairs, simple errors can lead to costly consequences. So, here are three dangers of DIY financial planning.
1. A DIY will can lead to uncertainty and disagreements
You may have read that legendary singer Aretha Franklin’s sons recently ended up in court in a bitter dispute about the late artist’s home and fortune.
After her passing, her family found two handwritten wills in her home, one in a locked cabinet and one, written four years later, hidden in a couch.
A Michigan judge ruled that the later will was valid, handing ownership of her assets to her second oldest and youngest children – Edward and Kecalf.
Neither document was a formal, typewritten will and this uncertainty led to an unpleasant and expensive five-year court battle, estranging her family in the process.
If you want to avoid disputes when you have passed, and to ensure your estate is distributed according to your wishes, seeking professional help when writing a will can be beneficial. And, as October is “Free Wills Month”, there’s no better time to write or update your will professionally to lay out your wishes.
2. DIY investing has many pitfalls
Investing has never been easier. The rise in popularity of investment apps has opened up share and fund trading to millions of amateur users, while tips on which investments to buy and sell are never more than a social media visit away.
While low-cost trading has democratized buying and selling shares and units, there are plenty of pitfalls to DIY investing.
You may take too much risk
Balancing risk and reward is an important part of a solid financial plan. Too little risk and you may not achieve the growth you need to reach your goals. Too much risk and you could be kept up at night worrying about the state of your portfolio.
As a DIY investor, it can be hard to determine what level of risk you are taking and whether it aligns with your tolerance for loss.
You may not be diversified enough
Diversifying your investments by investing in different sectors, asset classes and geographic areas can help to protect you against market fluctuations. If one investment falls in value, gains made by others can balance this out.
DIY investors often fail to diversify well as, often, much of their wealth is held in a single investment or small number of funds. Many also exhibit “home bias” and only invest in shares or funds in their own country.
One trend that we have seen over recent years is many people investing in “global equity” tracker funds. While, in principle, this may well be suitable for some investors, when you look “under the bonnet” you will see that nearly 65% of a typical global equity tracker fund is invested in the US.
What’s more, the US market has a strong bias towards technology stocks, While these have performed well in recent years, there is no telling whether they will continue to perform well in the future.
We only need to look at the period between 2001 to 2010 where an investment in a global equity tracker would have underperformed a typical balanced fund which benefited from greater diversification.
Your emotions can get in the way of your progress
You recently read about why it’s important to ignore “noise” when it comes to investments. Hearing negative economic news or seeing the markets fall can result in making emotion-led decisions that hinder your progress towards your financial goals.
3. Working with a professional can give you peace of mind
Just as you might trust your car repairs or plumbing to a professional, working with an expert can also have positive results when it comes to your finances.
Many studies have shown that partnering with a financial planner can lead to better financial outcomes. However, when we ask our clients about the benefits of working with BlueSKY, the majority cite:
- Peace of mind
- Understanding and clarity
- Security
- Expertise
Of course, you could have a go at managing your wealth yourself. But, do you know enough about how investing works? Can you ensure you’re as tax-efficient as you can be? And do you have the time or expertise to manage your portfolio successfully?
As renowned firefighter Red Adair once said: “If you think it’s expensive to hire a professional, wait until you hire an amateur.”
Get in touch
If you want to avoid the costly mistakes that can arise from “doing it yourself”, get in touch to find out how working with a Chartered financial professional can add genuine value. Email info@blueskyifas.co.uk or call us on 01189 876655.
Please note
This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.