3 worrying dangers of DIY financial planning

If you’ve ever tried to save yourself a few pennies with do-it-yourself (DIY) repairs, you’ll know that it’s not always the savvy, cost-cutting move you thought it was.

According to new research from insurance provider Aviva, almost half of motorists have “botched” a car repair or maintenance job that has cost them more than £800 to rectify.

Cutting out the expense of professional advice and expertise might seem like an easy way to keep costs down, but it can result in greater expense, wasted time and a lot of stress.

The same applies when planning your finances. DIY financial planning is risky – read on to find out why.

1. Poor investment decisions resulting in costly mistakes

Unlike savings, investments can go up or down in value and they typically carry greater risk.

So, it’s no surprise that, according to research by This is Money, nearly 70% of people with savings lack the confidence to invest.

Investing money can be complex. Without a solid foundation of financial know-how under your belt, you could quickly see your hard-earned savings diminish for several reasons.

Misunderstanding how investments work

A recent survey by Lloyds Bank found that 38% of Brits are baffled by complicated investment jargon. If you’re new to investing, it can feel like another language — asset class, growth fund, gilts, equities, and so on.

Without a good grounding in such concepts, it’s easy to misunderstand how investments work and this could lead you to take on more risk than you can afford.

And it’s not just playing the stock market that can be a minefield for beginners. The seemingly “safe” world of pensions can trip novice investors up too.

Research published by the Telegraph found that 52% of the customers surveyed held pensions with investments that did not match the customer’s needs and risk level.

Working with an expert can increase your understanding of financial concepts and help you to ensure you’re making the right choices for your unique circumstances.

Making emotional decisions

According to Nobel Prize-winning psychologist Daniel Kahneman, financial decisions are based 90% on emotion and only 10% on logic.

Whether you’re tempted to invest in something because you’ve fallen in love with a particular brand or you get caught up in the excitement of “the next big thing”, acting on emotions could compromise your financial goals.

Balancing risk is a foundation of successful investing, and this needs a cool, calm, logical approach. A financial planner can act as a sounding board, helping you to avoid emotionally-led financial decisions that could hinder your progress towards your long-term goals.

Paying too much tax

If you jump into investing with little knowledge or experience, you’ll probably be unaware of the taxes you might be liable to pay.

Equally, you’re less likely to be aware of how to minimise your tax commitments to make the most of your investments. This could result in you paying out more tax than you need to.

A financial expert will help you to structure your assets tax-efficiently. Keeping more of your wealth makes it more likely you’ll meet your longer-term ambitions.

Failing to diversify investments

If you’re a DIY investor, you may be tempted to stick to a sector or type of investment that you feel familiar with.

However, if you put all your eggs in one basket by focusing on a single investment or sector, you’ll have nothing to offset any losses that might occur.

By diversifying you could balance the risk, so if one area suffers losses, the gains made in another can help to balance out this volatility.

Diversification is a key tenet of our approach to investing, and we always ensure our clients’ portfolios are diversified across asset class, sector, and region.

2. DIY wills resulting in inheritance disputes

A properly drafted will sets out how you want your property, money, and other assets to be distributed when you die. It may also contain your funeral wishes and other details.

According to a report in the Independent, the coronavirus pandemic triggered a 76% rise in demand for wills.

However, all wills are not created equal. DIY wills are on the rise, possibly due to the cost of living crisis, and data from Royal London reveals that this has led to a 37% increase in inheritance disputes.

Common shortcomings of DIY wills are missing elements such as naming a substitute beneficiary if the primary beneficiary has passed away.

This can mean family disputes, emotional turmoil and your wishes not being upheld.

Working with an estate planning expert can give you the peace of mind that your will is watertight, reducing the likelihood of arguments and challenges after you pass away.

3. Failing to achieve your long-term financial planning goals

A survey of 2,000 consumers published in FTAdviser found that many savers overestimate their financial planning capabilities. For example, 83% said that they could define inflation but, when asked, only 57% could successfully do so.

If you go it alone with your financial planning, you could lose out on building your wealth to its potential.

Seeking professional advice could reap significant rewards.

A Royal London report on the impact of financial advice found that Brits who took professional advice between 2001 and 2006 were nearly £48,000 better off over 10 years. And the benefits were potentially greater for non-affluent savers who were “just getting by”.

Get in touch

DIY financial planning is as risky and potentially costly as trying your hand at major car repairs without any mechanical engineering training or experience. Seeking advice from a professional financial planner could be a smart move that saves you time and boosts your wealth.

If you’re feeling overwhelmed by DIY financial planning and you would like to learn more about how a financial planner can help, we’d love to hear from you.

Please email us at mail@delaunaywealth.com or call 0345 505 3500.

Please note

This article is no substitute for financial advice and should not be treated as such. To determine the best course of action for your individual circumstances, please contact us.

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.