Yesterday we wrote about the top benefits of building your own ETF portfolio and I think it’s very clear that the benefits of building your own portfolio, managing and taking control of your finances outweigh the costs. That being said, I’m not nave enough to think that there are no downsides to building your own ETF portfolio. There are. Here is a breakdown of those that I consider to be most important.
-Time: While the required time is much less than most of you would probably expect, it does still require more time than if you gave the whole task to your financial adviser. The initial steps, the setup process are by far the most complex and unfortunately that causes many investors to never get started. I highly recommend that you sign up for our step by step free mailing list, it will help you out in a big way in terms of not feeling overwhelmed. That being said, once everything is setup, you can easily get by on 1 hour per month or so.
-Complexity: There is no doubt that no matter where you start from, you will have a lot to learn. It can certainly seem overwhelming if you try to do it all at once but once you start breaking down the steps, narrowing down the number of ETF’s and trading only once or twice per year brings down the complexity to something much more manageable.
-Abstract Benefits: When you go to the store, use a coupon or find a special, the benefits and the money saved is very obvious. Unfortunately, that is far from true when you are managing your ETF. The savings are substantial but they are not obvious or easy to calculate. You can approximate and a good way to do so is to use the spreadsheet that we posted on Experiglot (another one of our websites) that shows you how even saving 1% can mean an incredible difference. I do understand that it can be easy to put off a switch to ETF’s when the money that you save per day or per week seems minimal. Time and the compounding effect make the switch incredibly important.
-Error Risk: When you are new to trading and using financial markets, it can be scary to make a mistake. Fortunately, when trading ETF’s, the risk of making an error are very limited and you would likely be able to get out at little cost as long as you notice it. I guess we run similar risks in a lot of other aspects of our lives, it’s just about paying attention and being disciplined.
-Becoming Older: While there is no doubt that if you are reading this, chances are very good that you are ok to manage your own portfolio, the fact is that one day, we all get to the point where it’s no longer the case. Not having someone to manage your assets can certainly be a problem. This is a problem that we will discuss in length but there are of course many ways to deal with this.
Can you think of more downsides to trading your own ETF portfolio? If so, what would they be? How significant do you consider them to be?