DIY projects are all the rage these days. People are taking on weekend DIY projects and even building entire tiny houses by themselves. So why not use DIY strategies to build your investment portfolio? Well, there are answers that support and detract from such thinking. DIY investing may be the way to go for some investors, but it is very important to weigh the pros and cons.
PRO: Lower Fees
The fees charged by financial institutions are one of the main reasons people consider DIY investing. Even though a management expense ratio of 2.5% is usually considered marginal, it can add up over time. Some people would rather invest or keep that money for themselves. But, of course, that means taking on a lot more responsibility.
CON: More Sweat
As with all DIY, the greatest savings come from labor costs. People invest their own time and energy to produce sweat equity. The same is true for DIY investing. When investors do not hire a management company, they must invest their own time and energy into building value into their portfolio. And if you’ve ever seen a DIY reality show, you know it is always more work and bigger headaches than expected.
PRO: More Choice
DIY investors can purchase stocks, bonds, ETFs, GICs, and more. Individuals can invest in non-traditional options as well, such as stock futures or options. All of these investments are certainly available to investors who use a financial advisor, but financial institutions may have their own biases or their own product.
Deciding which investments to make on your own requires a lot of research. A new DIY investor should expect to spend at least 20 hours researching options before pulling any trigger. The amount of research needed only goes up from there, especially if stocks are involved. Most investments also require some kind of maintenance, which (surprise, surprise) requires more research.
PRO: Individual Risk Tolerance
Some people find risk tolerance questionnaires only scratch the surface of their confidence and willingness to take risks. The risk tolerance assessment may satisfy a financial consultant, but not someone’s own concerns. Risk tolerance can usually be discussed in more detail with financial institutions, but DIY investing allows you to work well within your own comfort zone.
CON: It Can Be Complicated
Since DIY investing is different for everyone, it can be argued that it is not that hard to do. But the opposite can be argued in the same breath. DIY investing can be complicated. If you want to build a diverse portfolio or plan to move a lot of funds around, there is going to be lots of factors you will need to be aware of. Managing those factors in the short term and long term further complicates matters.
DIY investing tends to be more appealing to people looking to make small or simple investments, like someone who wants to build their own coffee table. Those who are looking to build a portfolio with a master suite and a chef’s kitchen will usually opt to go with a financial institution. The rest of the investors who fall in between a coffee table and a dream home will need to review the pros and cons of DIY investing more closely to determine what is best for them.
The risk of loss in the trading of stocks, options, futures, forex, foreign equities, and bonds can be substantial and is not suitable for all investors. Trading on margin or the use of leverage is not suitable for all investors and losses exceeding your initial deposit is possible. Supporting documentation is available upon request. Trading futures, options on futures, and FX involves substantial risk of loss and is not suitable for all investors. Carefully consider whether trading is suitable for you in light of your circumstances, knowledge, and financial resources and only risk capital should be used. Opinions, market data, and recommendations are subject to change at any time. The lower the margin used the higher the leverage and therefore increases your risk. Past performance is not necessarily indicative of future results.