Do-it-Yourself Investing vs. Managed Funds
Becoming a DIY Investor
Do-it-yourself, or DIY, investing is an investment approach where the investor creates his/her own investment portfolio instead of utilizing an investment professional. Being a DIY investor and managing your own portfolio comes with some inherent risks, but also carries some significant benefits. Market timing and emotions can cause investors to become lost in the maze that is the complex world of investing. But the costs of professional money managers and their historical underperformance to the market can lead some to wonder: why use them anyway?
Should you become a DIY investor? Let’s look at some of the risks and benefits and some tips and tricks to make smarter investment decisions!
Risks of DIY Investing
The main problem most self-managed investors experience is their own emotions. People tend to overreact to specific market events although the broad fundamentals of an economy remain strong. Take this past December 2018, for example. Corporate profits remained solid while economic data in unemployment and GDP declined, yet held at healthy levels. The market got ahead of itself by selling off nearly 20%+, depending on the index you view. This event led many retail investors to sell after already incurring large declines in their portfolios.
When asked, Hedgehog Investment Research CEO and Founder, Ryan Preiss, said: “Investing in the market is comparable to navigating the sea. A map, or investment guide, keeps you on track to your destination.” Discipline is a core principle of investing in Hedgehog’s rules-based models which help investors implement historically proven strategies to make more intelligent investment decisions. “Responding to waves of volatility by changing the course of your holdings typically leads you to capsize the boat that is your investment portfolio. Having a clear vision of your course, alongside a preestablished plan of action, is the first step to commencing a successful DIY investment career.”
Hedgehog Investment Research provides models for investors to follow in their own portfolios. However, it is still up to the account owner to trade the positions themselves. What does this mean for you? Do you need an advisor, or should you manage your own money? Understanding how the costs of a financial advisor can provide significant value to their clients through behavioral coaching and emotional management may bring light to the situation. If a DIY investor cannot provide sufficient value or follow a disciplined approach such as Hedgehog’s models, then a financial advisor may be necessary.
Benefits of DIY Investing
If you decide to manage your own investments, you will notice many benefits of doing so.
1. You have full control over your investment decisions
The thought of your money leaving your control can be uncomfortable for some. Perhaps you have certain sectors and industries, such as opioid pharmaceuticals, in which you prefer not to invest. In these cases, it can be quite advantageous to control your own investments.
2. Expenses also play a significant roll in many financial decisions
By self-managing your account(s) you can significantly reduce your investment costs, especially over large periods of time. Reducing or eliminating management fees can go a long way for your investments.
3. Self-directed investing eliminates management fees that may already set you back
The well-documented underperformance of active managers relative to the market has also bred many DIY investors. Management fees already put you a percentage point, or so, behind the market. Any amount that an advisor underperforms beyond there can leave you significantly behind the S&P 500, or any other index you may be utilizing as a benchmark.
Learn the Payoffs as a DIY Investor
With a disciplined strategy, you can have strong success in managing your own investments. Determining your asset allocation is the first step in drawing the map that guides the future of your portfolio. The proper asset allocation can be set by understanding your willingness and ability to tolerate risk. Learn more about the current allocation of Hedgehog’s Stock-Bond Rotation Model and sign up for a free 7-day trial!