Self investor or selfish investor?

If you want to self invest you need to recognise and minimise the risk involved as Kay Ingram, director individual savings and investments at LEBC, explains

Self investor or selfish investor?

I understand why some people find self investment attractive. You want to make your own decisions and you do not feel the need to seek the advice of a financial services professional.

You understand investment risk, can afford to wait for losses to reverse and are prepared to live or die by your own judgements.

The trouble is that one day you might actually die or lose the ability to continue making those snap decisions which have served you so well so far.

If you are only self investing a relatively small part of your overall wealth, or have other guaranteed income which meets most of your outgoings, then you may not be too concerned at the prospect of your investments being inaccessible and possibly losing value in a falling market with no one able to take action for you.

If however you are self investing the wealth that pays your bills, covers your children’s school fees, your care costs or will be the main source of income for your bereaved dependents maybe you should reconsider whether you should take steps to protect your wealth and the income it provides?

I was recently introduced to the widow of an avid self investor who had invested all his pension fund and ISAs on a direct equity basis. When he died after a long illness she was shocked to find that the pension he had left her was not a guaranteed monthly income but a portfolio of directly invested shares invested via a well known retail investment platform.

The ISAs were also similarly invested via another self-invested platform and both portfolios were falling rapidly in the recent market correction. The platform explained that she was the nominated beneficiary and asked her to tell them what she wanted to do with the fund.

When she asked for their help with the investments they offered to write a report but wanted a fee of £5,000 for this and 2.2% per annum ongoing. Their only role has been to repeatedly ask her for investment decisions which she feels unable to give.

Her friends have made lots of helpful suggestions including cashing in the whole tax exempt pension fund which will also pay her a tax free income for life and investing this in a taxable and illiquid buy-to-let property. They are trying to be helpful but clearly have no understanding of how different investments are taxed and the impact of this on the net returns.

Perhaps you are a self investor with no dependents, so you may think you do not need to worry about this aspect. What if you didn’t die but just had an accident or illness that prevented you from making decisions and dealing? This might only be a temporary state but what if while you are lying in your hospital bed your funds are in free fall?

No one else can make changes to your investments unless you have legally appointed them to do so. Once capacity is lost you can no longer make that appointment.

What if your mental capacity is permanently reduced? While these scenarios may be a rare occurrence, if they happen to you they could have a big impact on your financial well being.

So if you want to self invest you don’t have to be a selfish investor. You can take steps to minimise these risks:

  • Ensure your dependents are aware of how you invest and either teach them your strategy or put them in the hands of a trusted manager or adviser who they can turn to for help.
  • Put in place a power of attorney so that if you can’t wheel and deal a trusted attorney can do so for you either with or without professional advice.
  • Self investing doesn’t have to be selfish you just need to think through the ‘what if’ scenarios and plan ahead, informing others who rely on your investment decisions along the way.
  • Make some provision for a cash sum and guaranteed income independent of your investments.

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