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Sound Advice: August 2, 2023

Do-It-Yourself Investing: Pros and Cons

Do-it-yourself (DIY) investing refers to the practice of managing your own investment portfolio without relying on the services of a professional financial advisor or broker. Although it can offer certain advantages, there are also potential drawbacks to consider. Here are some pros and cons of DIY investing:

Pros of DIY Investing:

  1. Cost Savings: One of the primary advantages of DIY investing is cost savings. By managing your investments yourself, you can avoid paying fees or commissions charged by financial advisors or brokers. This can potentially increase your overall investment returns over time.
  2. Control and Flexibility: DIY investing allows you to have full control over your investment decisions. You can choose which assets to invest in, set your own investment strategy, and make adjustments as needed. This flexibility can be appealing to individuals who want to actively participate in the investment process.
  3. Educational Opportunities: Engaging in DIY investing can provide valuable educational opportunities. By researching and analyzing investments on your own, you can deepen your understanding of financial markets, investment principles, and strategies. This knowledge can be beneficial in the long run and empower you to make informed financial decisions.
  4. Tailored Investment Approach: With DIY investing, you have the freedom to customize your investment approach according to your personal goals, risk tolerance, and investment timeline. You can align your investments with your specific needs and preferences without being constrained by a standardized investment plan.

Cons of DIY Investing:

  1. Time and Effort: Successful DIY investing requires a significant investment of time and effort. You need to conduct research, stay updated on market trends, analyze financial statements, and monitor your investments regularly. If you have limited time or lack the necessary expertise, managing your investments may become overwhelming or lead to suboptimal decisions.
  2. Lack of Professional Guidance: Without the assistance of a professional financial advisor, you may miss out on valuable guidance and expertise. Financial advisors have experience in analyzing investment options, constructing diversified portfolios, and providing personalized advice based on your individual circumstances. Their expertise can help navigate complex financial markets and potentially enhance investment performance.
  3. Emotional Biases: DIY investors may be prone to emotional biases that can impact their investment decisions. Fear, greed or overconfidence can lead to impulsive or irrational choices, such as panic selling during market downturns or chasing after speculative investments. Emotional biases can be challenging to overcome without an objective third-party perspective.
  4. Limited Access to Certain Investments: Some investment options, such as certain alternative investments or institutional-grade products, may have higher minimum investment requirements or restricted access for individual investors. These opportunities may be more readily available to investors working with professional advisors or through investment platforms that cater to accredited investors.

Ultimately, the decision to pursue DIY investing depends on your individual circumstances, financial knowledge, and comfort level with managing your own investments. It can be a rewarding and cost-effective approach for individuals who are willing to put in the necessary time and effort to educate themselves about investing. Even so, if you lack the expertise, time or inclination to handle your investments independently, seeking professional guidance may be a more suitable option.

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N. Russell Wayne, CFPÒ

Any questions?  Please contact me at nrwayne@soundasset.com 

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