Should DIY investors take advice?
More and more people are choosing to handle their own investments to cut adviser fees and because they want to take control of their finances. Price remains a barrier for many people looking for investment advice and, as a result, we are seeing a huge number of investors engaging in the process on their own. These DIY investors are at risk of losing money because they are not experienced enough.
Many fund supermarkets offer help if you don't want to pay for advice at all. There is an array of sophisticated low-cost and free online tools to help you choose and manage funds.
Alternatively there are an increasing number of virtual advisers that might be able to help if going it alone is just too scary. Standard Life has set up a ready-made drawdown service for savers who don't want to buy an annuity, don't feel comfortable managing their pension in retirement and don't want to employ an adviser.
Standard Life Active Retirement can be operated entirely online, but you can talk to a human being if you get stuck - for a fee. Once you tell it how you want to withdraw your money and how much, your fund is then split between up to three pots to give a mix of lower risk and growth investments, with the underlying funds selected by Standard Life. Charges vary depending on how your pension is divided between the three pots, and the size of your portfolio, varying between 0.71% and 1.53%.
Nutmeg.com is an online portfolio manager offering guidance based on how much cash you want to save, how long you want to invest for, and the amount of risk you are prepared to accept. It also asks questions about your income, assets, liabilities, age, employment status and living situation. The site's virtual adviser divides your savings into a range of funds and adjusts the mix to reflect market movements. Fees start at 0.3% a year, but can be as high as 1%, based on how much you invest.
Moneyontoast.com offers a virtual advice service too. There are no initial fees and the annual management charges on the funds are 1% a year. The minimum investment is a £1,000 lump sum, or £100 in monthly.
In exchange for any lump sum – usually your pension fund – an annuity is “bought” from an insurance company and provides an income for life. When you die, the income stops. Annuity rates fluctuate daily and depend on your sex (although from 21 December 2012 insurers will no longer be able to use gender as a factor when calculating annuities), age, health and a number of other factors, so you have to pick the right one and, once bought, its terms cannot be altered, so seek financial advice.