Deciding which investments to make takes time and energy, and just making the investments often costs money. You can save on investment costs by going DIY, or you can get help. Which is best depends mainly on you.
If there’s no advisor, broker, consultant, or planner to pay, there’s more money to actually invest. Over a long timeframe, cost savings can make a big difference. As an example, imagine you decide to invest $200 each month yourself while a friend hires help.
Let’s say you both earn 6% before expenses, but your portfolio costs just .5% per year, and your friend’s costs 1.5%. That means your return is 5.5% per year and your friends are 4.5% — a difference of just 1%.
After 30 years, you’ll have amassed $183,560, while your friend will have $152,447 — you’ll have 20% more money. Plus in reality, you’ll probably invest more per month as your earnings rise so the difference would be even greater. Investment costs could have a significant impact.
Still, cheaper isn’t always better. DIY means you have to do it yourself. Do. It. Yourself. If you don’t actually put in the time to learn the basics, study the options, and take action, you could easily end up worse off in the end, even though you didn’t spend as much.
Though it costs, the right pro or organization can help you understand the investment landscape, make confident decisions, and stick to your goals. The key is to understand how much you’ll be paying, what you’ll be getting for those costs, and then determine if it’s worth it.
For example, if the only investment you’re doing is participating in the TSP, maybe you don’t need outside help. On the other hand, if you’ve got a more complex strategy in mind, a motivator, coach, and unemotional advisor may be well worth the cost.
Consider the effort required, know the fees involved, and choose wisely. You can also do some DIY and get some help, too. Whatever you do, pick a path and go.