DIY investing refers to managing your own investments, as opposed to paying someone to oversee a portfolio for you. But is DIY investing a good idea? Or is it better to stick with traditional methods? In this article, I explore these questions in more detail.
What is DIY investing?
If you partake in DIY investing, it means you’re in control of managing your own wealth. In other words, the stocks, shares or funds you choose to invest in is entirely up to you.
DIY investors generally do not receive one-on-one investing advice. They bypass the traditional services offered by agents, stockbrokers and financial advisors.
Aside from saving on management fees, DIY investors are often attracted to brokerage accounts that charge little or no commission.
DIY investing has surged in popularity in recent times, particularly over the past year. The UK’s largest DIY investing platform, Hargreaves Lansdown, reported a record number of new investors during the first four months of the year. Up to April 2021, the provider added a whopping 126,000 new clients.
What is the attraction of DIY Investing?
DIY Investing is a form of active investing, which means investors hope to pick stocks and shares that will deliver higher returns than the rest of the market. In contrast, passive investing refers to investing in a market-weighted portfolio, with a long-term view in mind. As a result, passive investing involves minimal trading.
Traditional active investing involves paying management fees for someone to supervise your portfolio. These fees can rack up. It’s often said that once management fees have been taken into account, returns from active investing underperform passive investing strategies.
With this in mind, if you’re an active investor looking to avoid management fees, and you’re confident in your abilities to pick and research stocks, DIY Investing may be for you.
That’s because DIY Investors don’t take advice from financial advisors, nor do they have to rely on someone to rebalance their portfolio. As a result, costly management fees don’t apply.
The ability to trade and invest cheaply is, therefore, perhaps the most obvious draw of DIY Investing. This is a particularly big benefit if you’re looking to trade regularly.
Another obvious draw of DIY investing is that it puts you completely in the driving seat. This can be a real boon if you enjoy burying your head in company reports, or feel you have a knack for spotting hot startups with potential.
What about robo-advisors?
Robo-advisors offer a way of managing your money by trusting a computer algorithm to pick and choose investments for you.
Many see robo-advisors as halfway between having a professional manage your money and DIY investing. As a result, they can be considered a good option if don’t want to pay management fees but don’t trust yourself to buy and sell investments.
Is DIY Investing a good idea?
Whether DIY Investing is a good idea is entirely down to your overall attitude to investing.
Personally, I prefer a passive investment strategy, with a ready-made portfolio containing a mixture of shares and bonds in a multiple index fund.
With passive investing, I don’t have to worry about stock movements from one minute to the next. Therefore, don’t have to spend time researching individual companies. If one company in my allocation performs poorly, then it is unlikely to have a large impact on my wider portfolio.
My fund also automatically rebalances my portfolio. This means I don’t have to worry about holding too many bonds or shares in the future. As a result, I won’t be taking on more risk than I’m comfortable with.
That being said, I understand the attraction of active investing, particularly DIY investing. This is because it offers a way of investing cheaply and enables the investor to control their wealth. Plus, while passive investing can offer steady returns, it doesn’t offer a way to beat the market.
So if you believe you have the ability to beat the market, in line with the Motley Fool’s investing ideals, then DIY investing may be for you.
As with any investing, remember that the value of your investments can go down as well as up. If you are looking to invest yourself, bear in mind that you will be entirely responsible for the performance of your portfolio. This may be particularly difficult during times of extreme volatility. As the popular saying goes, “With great power, comes great responsibility.”
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