Getting started with investing can be a fairly daunting task if you don’t have someone showing you the ropes that knows what they are doing. Plus there are so many different things that you can invest in – I have previously written about Shares, Property, Forex and even Crypto currencies, but that barely scratches the surface of the various investment options available to you.

So today I want to look into the differences between DIY Investing and Managed Funds, as they are fairly different, and there are some great benefits to both. Please note though that there are a lot of different variables you will need to take into consideration before jumping into any type of investment, and if you are not sure then you should talk to a qualified financial advisor.

DIY Investing vs Managed Funds

DIY Investing

The bulk of what I talk about on Monster Piggy Bank (when it comes to investments) is Do It Yourself investment opportunities. I am someone that likes to get my hands dirty and really understand the nuts and bolts of what I am investing in. I really like to be in full control of my finances and to try my best to outperform the general market.

This type of investment option takes a lot of time and carries a fair bit of risk along with it – so obviously this isn’t going to be for everyone. In fact, now that I have a young son, I don’t believe I have the required amount of time available to be able to manage a large and diverse set of investments, so that is why I focus on just a handful at a time. Honestly, asides from not understanding what you are investing in, not having enough time is the second biggest risk factor to your success in DIY investing. You really need to stay on top of your investments and watch over them like a hawk – particularly if you invest in things like penny stocks that can be seriously volatile.

The main benefit to DIY investing is that you are in full control of your investments, and you decide exactly how your money is going to work for you. This can bring in some fairly spectacular returns like this stock on the ASX (pictured below) that went from less than 1 cent up to $5 in under 1 year!

ASX SIR Chart

 

Managed Funds

If you want to start investing but you are time poor, or a risk adverse type of person, then it is likely that managed funds might be more your style. Most managed funds offer customers a wide range of different investment opportunities, most of which are based around value investing principals and are often presented to customers with an expected return on investment per year. This information is provided to help you decide what type of risk/reward investment option is best for you. Quite often funds will provide details of year on year past performance figures, this is presented to you so that you can make a more informed decision on the type of investment you want to get into.

Getting started with managed funds is far simpler than getting started with DIY investing. For one, you don’t need to immerse yourself in learning all about an investment type to get exposed to it. Fund managers are paid big bucks to do that for you, and the good ones often have many years of experience in managing large volumes of money for clients.

In my opinion managed funds really is the best investment choice for someone that doesn’t have the time or the interest in understanding all the investment opportunities available, but wants to get a better return on investment than regular bank interest. The major downside to managed funds is that it costs money to operate in the form of a yearly or monthly fee (they do have to pay the people investing your money after all). You also have less granular control over what you invest in, as most funds give you a general market area where your money will be placed E.G the ASX top 50, top 300, commodities and things like property trusts, rather than selecting an individual stock. The other thing to note is that despite all the experience and brilliant past performance, there are no guarantees that the managed fund will make a positive return on investment and if one does try to offer a guaranteed profit you should leave their offices – quickly!

The main benefit I see to managed funds, is that it lets your average mum and dad investor get their toes wet with investing. It doesn’t take much time, and if you shop around there are some really good top quality funds that will consistently make decent returns with your money. You won’t make thousands of percentage point gains like the stock I posted above, but over the long term you can easily achieve good solid returns that may allow you to retire much earlier than if you kept your money in the bank or under your mattress.

 

Question

What type of an investor are you? Do you like the ease of use of a managed fund, or are you a bit more of a cowboy like me and prefer to go it alone?