Page 40 - DIY Magazine June 2018

ETF PORTFOLIO MANAGEMENT: DO-IT-YOURSELF OR OUTSOURCE IT?
Dominique Riedl CEO, justETF
Should you manage your own portfolio or hire a professional? This is the big decision every new investor must make. DIY saves money but takes a little more time. This is why it’s worth your effort...
If you want to invest in a passive ETF portfolio then you have three choices:
• Build your own custom ETF portfolio via an online broker
• Select an off-the-peg solution through a robo-advisor
• Opt for an ETF fund-of-funds – this is an ETF that invests directly in a portfolio of ETFs for you
Each route has its pros and cons depending on how much hand-holding you need, but DIY has the edge in the following areas:
FLEXIBILITY OF ETFS
You decide where your money goes when you’re in complete control. If you decide that the US looks overvalued then you can choose to sell some of your holdings and take the profits. If you’d like to reduce your exposure to currency risk as you get older then you can direct more of your contributions into UK ETFs. After a stock market fall, you can devote your funds to equities while they’re ‘on sale’ and pass on fixed income for a time.
BESPOKE PORTFOLIOS
When you call the shots, you’re able to create an ETF portfolio that precisely fits your risk profile and investing views. If you’d like to diversify more widely into gold or gold miners – you’re in charge. If you’re worried about inflation then you can up-weight your position in index- linked bond ETFs, or commodities or energy ETFs. If you’d like to express your ethical values then you can choose socially responsible ETFs.
You don’t get this luxury with packaged solutions that achieve scale by funnelling customers into particular boxes. You can’t switch out an ETF you don’t like for one you do. In contrast to the restaurant industry, you can’t have things your way.
LOW COST OF ETFS
Naturally, DIY ETF investing enables you to hammer down costs. You can choose the cheapest ETFs in any category and quickly take advantage of the intense price competition between providers offering me-too products, especially in Core ranges.
The same applies to platforms – you retain the freedom to pick the one that offers the best platform and trading fees for the individual size of your portfolio and trading frequency. Managed solutions don’t provide these advantages. Not only are you paying their salaries, but you’re also paying towards their regulatory burden, marketing expenses, office rent and profit margin. And that’s on top of the ETF fees you pay via DIY. Moreover, while you can switch your loyalties to the best product on a dime, automated and managed solutions may be hemmed in by their business relationships and need for economies of scale.
ETFS AND TAXES
Standard solutions are not tax efficient if you hold the wrong products outside of your tax shelters.
DIY Investor Magazine | Jun 2018 40