We have always learnt that investment and financial planning must be handled strictly by professionals. It is like going to a doctor. You can, probably, diagnose and cure yourself but professional advice is mandated. So, how is it different in the case of financial advisory? Do you not require continuous professional assistance for managing your finances and planning your goals?
Welcome to the world of the DIY investor
There are umpteen occasions of mis-selling in the financial industry and the problem is that you never know whether you are buying a product that you need or you are being sold a product that needs to be sold. Therefore, you get products but you do not get solutions. Remember, financial advisory is not rocket science or nuclear physics which requires years of in-depth learning and understanding of the subject. However, if you want to graduate from the world of financial products to financial solutions. then you need to seriously look at becoming a DIY (Do-It-Yourself) investor. How exactly do you evolve as a DIY investor?
Evolution of a DIY investor
Typically the evolution of a DIY investor involves 5 key stages:
1. Paradigm shift from people to processes
This is the first step in your evolution towards a DIY investor. The DIY approach is more about process than about people. It is about getting the entire process of financial advisory right rather than focusing on the people who give you advice. The whole idea of DIY investing is to remove the personal bias in your financial planning decisions substantially, if not entirely. The idea is to put in motion a foolproof process. The way the needs are analyzed, the format in which the goals are bucketed, how the alternative investment options are evaluated, how the right fit is zeroed in on and how it is monitored are all perfected. The logic of the DIY investor is that if the process is made seamless and dispassionate; thus reducing the need for human intervention.
2. Leveraging complex technology in a simple way
Technology may be complex but its application has to be simple. That is the cornerstone of the DIY investor’s approach to financial goals and investments. The DIY investor prefers a combination of high-end algos, use of big data across several databases, machine learning to fine tune the program learning process and delivery of the robo advisory across a variety of platforms. The focus is on simple and smart application of complex technology. The interface matters a lot to the DIY investor.
3. Approaching your investments backwards; starting with your goals
Unlike many investors, the DIY investor starts with the end in mind. There is an old saying that if you do not know your goals then it does not matter how fast you run. That is true of investments in the case of most people. That is why they end up with a huge gap between their resources and their goals. The DIY investor starts off with the goals in mind, calculates the present value, estimates the inflation adjusted value, provides for exigencies and then puts a future number to the goals. It is only after this process if completed and signed off that they move to the next step.
4. Designing an investment portfolio that fits best into these goals
The next step for a DIY investor is to design the portfolio. The asset mix will be a combination of equity, debt, liquid assets and other hedging assets like gold. The portfolio mix will be constantly monitored and be measured against the goals. The asset mix will be modified not only based on age of the investor but also based on changing circumstances and risk appetite of the investor. Here again the focus is to use the power of big data to evaluate investments and simulate various return possibilities.
5. Absolute control over assessment, portfolio creation and monitoring
This is perhaps the most important aspect of the DIY investor. The DIY investor is not interested in an off-the-shelf product but a product that is tailor made to their unique needs. But above all, DIY investors are control freaks. They love the DIY approach because they retain control over the complete financial process.
The evolution of the DIY investor is likely to be the next big trend in the Indian financial markets. Welcome to the next big wave in financial advisory in India!
(By Vaibhav Agrawal, Head of Research and ARQ, Angel Broking)