Should You Manage Your Own Portfolio?

Unhappy with financial advisers, more investors are taking the DIY approach—and the number of tools to help them is growing

By David Bogoslaw

If retail investors were disgruntled about the performance of financial advisers in the past few years, those feelings have likely been exacerbated by the losses stemming from the economic crisis. People are still opening accounts at online brokerages such as Charles Schwab (SCHW) and E*Trade Financial (ETFC), but increasingly they're using the portfolio management tools on these sites and eschewing the hand-holding of professional brokers.

The trend toward self-reliance is also becoming stronger as more investors discover useful investment advice and a sense of community on a host of Web sites that stress the advantages of being able to track your peers' actual portfolios to verify that they're putting their money where their mouth is.

Members of online investing communities also like the higher tone and more substantive content of the dialogue they take part in on the message boards and blog posts of sites such as ValueForum, whose users tend to be more sophisticated and insistent on having information to back up a recommended stock pick. "It's a good time to be a member of a site like this," says Adam Menzel, co-founder and chief operating officer of ValueForum. "When things are changing so rapidly, it's nice to have people to turn to for their thoughts and opinions, rather than just feeling trapped and isolated."

Preemptive Action

But Ronald Rogé, a financial adviser and co-author of The Banker and the Fisherman: Lessons in Life, Wealth, and Happiness for the 21st Century, says the real value of advisers is in preventing clients from going down certain roads, such as chasing bloated returns during the tech bubble. "Sometimes, it's what we don't do that has an impact on their portfolios and performance more than what we do do, and they just don't see it because we've avoided certain things," he says. He also says a long-term adviser who knows your unique circumstances can offer guidance on managing your money amid situations such caring for an aged parent or dealing with a grown child who's moved back home.

Investors who do wish to fly solo need to examine their situation carefully. They have to be honest with themselves about how much they understand what they're doing and how much time they're able and willing to devote to staying on top of the market. "It really does require a lot of time," says ValueForum's Menzel. "The members who really have the most to contribute [are] either retired usually or …the people who have the time on their hands to really do it right."

Besides time and experience, how well-suited you are to manage your money may simply be a question of temperament. "I've always been a guy who more or less made his own calls, has done his own analysis, looking at the numbers, thinking about a business plan, thinking about the competition," says John Grossman, a former corporate planner who retired 14 years ago at age 43 and was one of the first people to join ValueForum. He thinks most advisers are being paid massive sums to babysit money but have no idea how to make money. "I'd rather pay me to do some of that thinking instead of handing it over to somebody else whose motivation and interest may not align with mine," he says.

Online discount brokerages such as Schwab, E*Trade, and Fidelity Investments offer basic portfolio management tools, from asset allocation tools to stock screeners that help you narrow the enormous universe of equities to a manageable group of top performers.