Most investors do not realise, but as a private investor managing your own money, you have got an immense advantage over fund managers and professional portfolio managers due to factors you may not even be aware of. Sure it will take up some of your free time but it will probably be one of the most rewarding activities you can spend your time on. You have worked hard for the money you have saved and it would only be prudent to invest in the best way possible.Also with public pension systems crumbling around the world because of ageing populations, making the most of your savings has gotten much more important.
Here are the advantages I have come up with.
1. You can wait - As a private investor you can wait for attractive investment opportunities to present themselves. If you cannot find anything attractive you can stay in cash. Fund managers do not have this luxury. They have to invest in whatever their investment area is irrespective of valuation. Holding cash in the fund management world is known as career risk as the fund manager runs the risk of falling behind his peers or benchmark. The larger the cash position the higher the career risk. The best example of career risk I have read is value fund managers losing their jobs because they refused to buy internet shares during the internet bubble.
2. You can invest anywhere and everywhere - As a private investor you can invest in any type of asset in any country that offers an attractive risk return trade-off, be it corporate bonds, equities, options, real estate etc. Fund managers have to stay within the fund's investment area. Additionally complying with regulations, even further limits their investment choices. You can argue that you can change to a fund in another investment area but that is also actively managing your money.
3. You can invest in any size - This is similar to the investing anywhere and everywhere, as you have the freedom of investing in small or large companies whatever is most attractively priced. I was recently astounded when I heard of a value fund manager that had to invest in companies that have a high weighting in a particular index because he had institutional investors (read large investors) that would withdraw their funds should his performance deviate too much from the index. This is ludicrous,…
