The Real Cost of DIY Investing
By Marjorie L. Rand, CPA, CFP®, RICP®
Investing has become more accessible than ever before, thanks to online trading platforms and a wealth of resources at our fingertips. As a result, many individuals have embraced DIY investing to take control of their financial futures.
While this approach has helped many grow their wealth, the true cost of DIY investing may not be as straightforward as it seems. In this article, I discuss the hidden fees and potential risks of managing investments on your own and share strategies to enhance your investment approach for the best possible results. Whether you’re an experienced investor or a beginner, understanding the real costs of DIY investing is critical to realizing your financial goals.
Advantages of DIY Investing
One of the primary advantages of DIY investing lies in the fact that managing one’s own finances can be empowering and rewarding. With this approach, you have full control over your investment decisions, allowing you to tailor your portfolio to your specific financial goals and risk tolerance.
Additionally, it can save you money in the short term by avoiding fees. Financial advisors typically charge advisory fees or commissions for their services, which can add up over time. But it’s also important to remember that DIY investing comes with its own risks and drawbacks.
What Are the Drawbacks?
Now that we know a little bit about the benefits of investing on your own, let’s take a look at the disadvantages and potential costs.
1. Time-Consuming
One of the most significant drawbacks of DIY investing is the amount of time and effort it can require. Unlike hiring a financial advisor who can manage your investments on your behalf, investing on your own puts the responsibility of research, analysis, and decision-making squarely on your shoulders. This means you’ll need to stay up to date with market trends, research potential investments, and continuously monitor your portfolio to keep it aligned with your goals and risk tolerance.
For the average person, this level of involvement can be time-consuming and overwhelming. With busy work schedules, family commitments, and other responsibilities, it can be challenging to find the time and mental energy to devote to managing your investments effectively. Many DIY investors often find themselves poring over financial reports, analyzing charts and graphs, and researching new investment opportunities late into the night, sacrificing precious time that could be spent on other hobbies or interests.
2. Potentially Emotionally Stressful
The responsibility of managing your investments and making crucial financial decisions can be overwhelming, especially when dealing with volatile markets or unexpected events that can impact your portfolio’s performance. Investors may experience anxiety, fear, or uncertainty, especially when faced with losses or unexpected changes in the market. You may also feel a sense of pressure to make the right investment decisions, which can lead to feelings of self-doubt.
Unlike working with a financial advisor who can provide an objective perspective, DIY investors may also become too emotionally attached to their investments, which often leads to poor decision-making. It’s possible they may hold on to underperforming assets for too long, ignoring warning signs or market trends, or make impulsive decisions based on emotions rather than logic. In the end, the emotional stress of investing on your own can take a toll on your mental health, leading to burnout, anxiety, or possibly even depression.
3. Detracts From Important Areas of Life or Work
Going on your investing journey solo has the potential to detract from your personal or professional life, especially if you’re not prepared to handle the time commitment or stress that comes with managing your investments. For those with busy lives, this time commitment can take away from other important activities, such as spending time with family, pursuing hobbies, or advancing your career. This is why it’s critical to be realistic about the amount of time and energy you can commit to managing your wealth and make sure it aligns with your goals and priorities.
4. Costly
While investing on your own can potentially save money in advisory fees, it’s important to consider the potential costs and risks involved before deciding to go it alone. Many individuals who invest on their own have the idea that they’re saving money, but the truth is that it can be costly, especially for novice investors who lack experience or knowledge about investing. Without the guidance of a financial advisor, DIY investors may make expensive mistakes, such as buying or selling at the wrong time, investing in high-risk assets, or failing to diversify their portfolio. These mistakes can lead to significant financial losses, reducing the potential returns of their investments.
5. Suboptimal and Risky
Most investors who are not well versed in finance typically lack the expertise or resources available to professional financial advisors. While some DIY investors may have a basic understanding of financial markets and investment strategies, they may not have the in-depth knowledge or experience necessary to make informed investment decisions.
Financial advisors, on the other hand, have years of training and experience, as well as access to a wide range of investment research and analysis tools that can help them identify the best investment opportunities and manage risks. They provide a personalized investment strategy based on your financial goals and risk tolerance, which can help ensure you are investing in a way that aligns with your needs and objectives.
Seeking Support With Your Investments?
If you’re like most of our clients, your busy schedule leaves little room for managing your investments. While DIY investing might seem like a tempting option, it may not be the best fit for those with limited time or experience in financial markets.
Partnering with a skilled financial advisor allows you to delegate the complexities of investing, giving you back valuable time and mental energy for the things that matter most in your personal and professional life.
At Rand Financial Planning, LLC, I design tailored investment strategies that align with your goals and risk profile, offering continuous support to help you navigate the ever-changing market landscape. Schedule a 20-minute introductory call or reach out to me at 908-895-2406 or marge@randfinancialplanning.com to see if I’m the right fit to help you on your financial journey.