Going it alone? Top 10 tips for DIY investors

2nd December 2013


More people than ever before are forecast to turn to DIY investing as a result of the Government’s overhaul of the UK’s investment industry.

The City watchdog, with the introduction of the Retail Distribution Review (RDR) on 31 December 2012 banned the practice of financial advisers earning a living from the commission payments from fund and pension providers on the back of recommending their products.

Now consumers most pay for financial advice, either via an hourly rate, or by a percentage of the value of their investment portfolio.

Research from consultancy Deloitte in report published just before the RDR came into force forecast that the new rules could leave up to 5.5m Britons financially orphaned i.e. without an adviser, as many would be put off paying for advice in such an upfront manner – even if it could potentially give them a better deal.

READ MORE: The fund charges shake up – what you need to know

But saving for the future is more important than ever and with continued low interest rates, stockmarket investment is a natural consideration to secure higher returns.

The Alliance Trust has seen a surge in DIY investing since the introduction of the RDR.

Sara Wilson, of Alliance Trust Savings, says: “Due to the demise of financial advice from bank branches in the wake of RDR, we are seeing more people take responsibility for their own investment decisions. DIY investing can be extremely rewarding but it also takes commitment.

“Personal plans and circumstances change over time, so it is essential to set your objectives and do your research at the outset and then review your investments periodically to help you understand whether you’re on course to meet your financial goals.”

Alliance Trust Savings has put together a basic checklist to help investors who are comfortable to do it themselves get started.

1. Get Advice if you need it

DIY investing is not suited to everyone, so before becoming a DIY investor be honest with yourself: do you understand the investments and products that you will be investing in. If you decide to go it alone, do not be afraid to get professional finance advice from time to time, especially on complex investment and pension decisions or tax issues.

2. Know your allowances

For most clients, ISAs and SIPPs remain the most tax efficient savings products. An ISA allows you to invest up to £11,520 (stocks and shares ISA) tax efficiently, while a SIPP allows you to invest up to £50,000 tax efficiently (depending on personal circumstances). Remember an ISA allows instant access, while you can only withdraw income from a pension from the age of 55. Most investors should consider these tax efficient products before investing in other less tax efficient vehicles.

READ MORE: Investing for income

3. Make a plan

Before investing ask yourself a few simple questions: Why are you investing/saving? How much can you afford to save? And be realistic; remember investing in equity based investments should be viewed as a medium to long-term investment (five to 10 years), so if you want to save for Christmas or an upcoming holiday, you should consider a different approach. Once you have a plan stick to it, but review regularly to ensure it continues to meet your financial needs, especially if your circumstances change.

4. What is your appetite to risk

It is essential to understand your attitude to risk before making any investment decisions, taking into consideration your age, income and other sources of wealth, dependents and so on. If your attitude to risk is very low, then equity-based investments are unlikely to be suitable.

5. Do your research

Most platform providers will offer a research service for you to use. This information can help you determine the risk profile/rating of an investment, the charges that will apply and also provide performance data.

READ MORE: Investing strategy

6. Regular investing

Consider investing on a regular basis, for instance monthly, to help reduce the impact of market volatility on your investment.

7. Manage your portfolio online

The value of equity based investments are constantly changing and by managing your portfolio and trading online, you can react quickly to market movements – postal and even telephone orders can result in prices changing by the time the order is executed. Online trading is also normally more cost effective.

8. Clean Share Class funds

If you plan to put money into investment funds, be sure to compare fund charges. On some platforms investing in a fund could carry a 1.5% initial charge, while on others the same fund might be available for a 0.75% initial charge. This is because some providers still receive a commission payment from the funds they sell, which increases the charge to the customer, while others have moved to ‘clean’ share class funds, which are commission free.

9. Research provider charges and consolidation

The charges levied by your platform / product provider can also vary significantly. Some will charge an administration fee on a percentage basis, meaning your charge will fluctuate with the value of your portfolio. Always convert this percentage-based fee into a pounds and pence equivalent to understand exactly how much it will cost you. Alternatively, you could consider a flat fee model, where you pay a fixed administration charge, which does not vary by the size of your portfolio and therefore is often preferred by investors looking to consolidate their wealth in one place.

10. Regularly review your portfolio

Even when taking a medium to long term approach to investing it is vital that you regularly review your portfolio. Set aside an hour a week to check the progress of your investments. If you are making additional regular contributions try and increase these annually in line with inflation. Be sure to review your investments against your plan, and ask yourself if you are still on track. By reviewing regularly and taking action when required you should reduce the chances of any nasty shocks.

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