By Tosha Dunn, Spring 2016 Student Intern
Should you? I mean, maybe. You have read my articles after all. Personally, I would say “no, no way, man.” But that’s my personal preference and not advice.
But okay, let’s say that you do want to go it alone and avoid fees and the worry of giving your coffee can of money to anyone else. What might you consider as a lone-wolf? First, I would want to really, really research the available products and strategies. I’ve discussed some, like the index fund and a 401(K). But there are other things available, like IRAs, and Roth-IRAs, and mutual funds, etc. Seriously, there are tons of financial products available, and some are even considered exotic, like derivatives. Then there are various things like stocks versus bonds, over-the-counter markets, and commodities futures markets.
I’ll leave the more exotic sounding items to you, but some of these are somewhat straightforward. An IRA, or an Individual Retirement Account, isn’t exactly an investment. It’s an account where you put your investments to benefit from tax breaks. This means that all of your products, like stocks, are placed in the account and grow in value without you paying taxes over the growth period (you pay when you cash out). However, you only get this benefit if you cash out before you’re age 59.5–yes, it is that specific. A Roth-IRA allows you to pay taxes as you go and cash out without a tax payment.
Overall, I would consider and investigate the topics I have mentioned–creating a diversified portfolio is a difficult trick that you may have difficulty managing on your own, but, one last time, it’s all about your risk tolerance. Not to mention, there are always index funds with low fee rates. Because fees can be a serious risk as well. Yes, PBS’ Frontline did an entire story on the issue of fees, and every investor will face fees whether at cash out or for every trade, and fees eat away at the overall value of your investments – even the SEC says there’s an impact. So take a deep breath, research, and make an educated decision. Investing isn’t easy, and it’s a major life decision because period 2 is closer in time than you think. You can’t always be in period 1. (If you’re interested in understanding period 1 and period 2 from an economic modeling sense: http://faculty.chicagobooth.edu/eugene.fama/research/Theory%20of%20Finance/Chapter%206%20The%20Two%20Period%20Consumption%20Investment%20Model.pdf).