Investing: should you do it yourself?

  • Do it yourself? Follow Martha’s rules to gauge whether you are ready to manage your own investments

    Do it yourself? Follow Martha’s rules to gauge whether you are ready to manage your own investments

The monthly Moneywise Pretend Portfolio articles are generating interest, raising awareness of investing, and reader questions.

Investments, even though we don’t realise their impact, are part and parcel of everyone’s financial life.

Today, we feature an investing query on whether to “do it yourself”, or work with companies that can provide investing services.

Our senior citizen reader would like to start investing, but finds choosing an investment and research of companies a challenge.

Our reader wonders whether DIY is worth the effort, or should he/she just turn over a certain amount of cash to a company who will invest it for him/her.

Oh, readers! This is such a loaded question!

There is a common investment market saying: “Never invest in anything that you don’t understand.”

On the other hand, if you are never able to fully learn about investments, then it appears that you will never be able to put your excess cash to work for your financial future. Further, hesitancy in taking the investment step has a built-in aversion — given that investment venues can return far more appreciation than cash savings, but may also put your heard-earned money into a loss position.

We know little about our senior citizen, so, we can make some assumptions:

• Retired

• Perhaps a part-time worker

• Living on fixed income from possibly one or more pensions, savings, perhaps a rental

Moneywise’s Readiness-to-Invest Sequence Rules are a guide that just about every individual contemplating investing should follow. Readiness is so-called, because you must feel comfortably positioned financially to invest in capital markets.

Well, except for billionaires, of course, but you know what, I can almost guarantee they will use the same formula, they just have more money to start with.

Readiness-to-Invest Sequence Rules involve the following:

• Comfort with capital market fluctuations

• Significant cash buffer savings, and/or a very, very stable employment position with advancement prospects

• Ownership of other assets as well as limited, manageable debt — better yet, no debt. Beginning investors — a warning here, never ever, borrow money to invest in capital markets!

• Willingness to get on the investment learning curve. You don’t have to know it all before you start (otherwise you would not be reading this article), but you certainly want to take every opportunity to upgrade your investing knowledge

First rule: can you afford mentally and physically to lose any invested monies, even if the loss is temporary?

Emotions often torpedo practical logic, especially when financial markets become “frothy.”

Don’t you just love that word, comparing gyrating investment volatility to a smoothie? Imagine. The real question remains the same: “Can you handle and/or afford to lose money, any money?” If the answer is no, then you have your solution to investing. Don’t do it!

Second rule: how much do you have tucked safely in a cash buffer?

If you passed the first emotional rule, then here is the sequence of managing your money — to determine if you do have excess cash to invest.

How much of your cash savings, held in low or no-risk accounts, is available for everyday living expenses? Six months is nowhere near enough when retired. Ideally, retired individuals, reliant upon fixed incomes, who wish to invest (or are already invested in capital markets) should have at least two years of living expense in risk-averse savings, three years or more is better.

Why? Because a large cash buffer allows the individual (or retired family) to wait out temporary market downturns — without being forced to sell out at a loss.

This concept is terribly important. Moneywise has witnessed far too many times how emotional impact in a temporary down market period, caused individuals to react precipitously to sell off, at a loss, perfectly good investments.

Often, the individuals did not have sufficient other financial resources. Of course, said investments later recovered all losses, moving on to greater appreciation.

Guaranteed, at least almost, pension income from governments can be substituted here for part of the cash savings, but don’t count defined benefit pension income derived from a former employer. Companies with defined benefit pension liabilities do go out of business. Solid, stable, high credit-rated country governments, generally, don’t default on social insurance (security) pensions.

Third rule: do you fully own all your assets, particularly, your home? If not, how much debt have you incurred? Do you have the means within your cash buffer to manage said debt adequately?

Fourth rule: are you willing to learn about investments? Even if the decision to work with a financial representative is taken, this is your money. You must acquire enough knowledge to know that your FR has a fiduciary duty to you and will act in your best interests.

You cannot rely simply upon trust. The mantra is always, verify the investment, the FR’s credentials and experience, and the track record of the financial institution, insurance or investment company providing the product and service. Then, consider trusting the individual/company to invest your cash appropriately for you.

Do you feel comfortable with the rules?

Yes, then take the step to invest!

Start small:

• Buy an individual stock — allowing you to more fully understand local companies

• Consider a balanced mutual fund for a professionally managed exposure to broad investment markets

Just those two purchases will provide incentive to learn, without feeling overwhelmed. Check last week’s article for investing books/websites.

Consider trying both of these investing approaches.

• Pick one Bermuda publicly traded company’s stock, say Argus Group Holdings Ltd, the first one listed alphabetically on the Bermuda Stock Exchange.

BSX Main Board Companies:

• Work with one of the local investment firms offering mutual funds. See Moneywise article series links.

Comparing your Bermuda mutual fund options, April 18, 2015 and starting January 17, January 24, and March 28, 2015 for full series.

Write to me with your questions. I will answer — sometimes, not as timely as I would like, but you will hear from me.

Disclosure: Martha Myron does not work for, represent, own, buy or sell any Bermuda company stocks or mutual funds.

Martha Harris Myron CPA CFP JSM: Masters of Law — international tax and financial services. Dual citizen: Bermudian/US. Pondstraddler Life, financial perspectives for Bermuda islanders and their globally mobile connections on the Great Atlantic Pond. Contact:

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Published Jan 18, 2020 at 8:00 am (Updated Jan 17, 2020 at 11:36 pm)

Investing: should you do it yourself?

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