Is DIY investing suitable for you?

Today’s millennials like DIY (do-it-yourself), a common term for doing things by yourself rather than seeking professional help. With information being widely accessible, these internet-savvy millennials have the resources and information at their disposal to learn and do anything they wish. Financial planning is one of them. 

With a vast amount of information, ranging from data, news articles, blogs, online tutorials, millennials are moving away from relying solely on financial advisers to guide them. 

The question that one needs to ask is that whether DIY investing is suitable for them or not? Just because technology has made investing easier does not necessarily mean that everyone should actually opt for it. 

Let us understand why a DIY approach to investing may not be the best option for you.

Decisions governed by emotions

For normal investors, the two emotions that tend to affect investment decisions are greed and fear. When you take the DIY approach to invest, you stand the risk of making hasty decisions due to personal life events or due to short-term market fluctuations. In situations like these, decisions often get clouded by emotions that can impact your financial plan and throw it off track. Without professional help, investors run a risk of either being overly cautious or speculating beyond their risk appetite. Investing is a long-term process and such ad hoc decisions may not allow you to take the full benefit of your investments. 

Do you have the time for it?

Financial planning and managing investments require a lot of time, expertise, and effort. Constant reading and keeping oneself abreast of the market are required. This could be difficult for a working professional, a full-time homemaker, or someone who runs their own business. Since managing investments is an ongoing process, it will be difficult to take out time on a regular basis to research investment ideas, take financial decisions, review and keep a track of everything. Not giving sufficient time may hamper the quality of decisions and ultimately impact your long-term financial returns. Your financial planning thus needs expert handling.

Financial planning is not mere fund selection

DIY investors often focus on fund or stock selection only while planning for their investments. Financial planning is however much more than that and involves a comprehensive process of goal setting, risk analysis, asset allocation, etc. It is imperative to set financial goals, create an asset allocation strategy based on a person’s risk profile and choose different financial instruments that meet that objective. 

Another mistake that DIY investors make is that they consider financial planning a one-time exercise. However, reviewing and rebalancing investments is an equally important aspect of financial planning. While SIPs in well-researched funds will automate investing and help take advantage of rupee cost averaging, it is also important to periodically review the portfolio as well as the performance of different asset classes to ensure the end objective is intact. 

Doing it all by yourself could prove to be very daunting and this is where an unbiased, certified financial planner can help you out.

A diversified portfolio is just one piece of the whole puzzle

While a diversified investment portfolio is important, it is not the only thing one must look into. A competent financial planner would also look into your overall financial position including your debt, income, savings, insurance, tax strategy, etc. All this could be very difficult to manage for an ordinary investor. 

Too much information to consume

The investment environment is ever-changing with asset classes responding differently to various macro and micro-economic factors. On top of this, the plethora of news available around, often, creates a noise that tends to hamper decision making. For a normal investor, it is difficult to sift through so much data on a continuous basis, to make sense out of it, understand the impact of the newsflow on their financial goals, and to make adjustments, unless this is our full-time job. All this process requires years of training and job experience that a professional financial advisor possesses. It is also often not possible to keep a track of all the varied investment options in the market and their risk-return metrics. 

The fund advisors are experienced to screen the information and data available, converting them into actionable ideas, and capitalizing on the opportunities available to help achieve investor goals better.

Consistently higher returns is a myth 

The pandemic-induced lockdown led to a surge in interest from young first-time investors. Consistently high equity returns during the lockdown have also led to a rise in new investors who jumped into the game out of FOMO (buy, out of the fear of missing out). New-age trading platforms with minimal costs have further fuelled interest, helping investors take equity positions themselves. However, it is important to understand that stock markets are volatile and cyclical in nature and patience and caution are vital to deal with this volatility. RBI’s stance on prohibiting cryptocurrency advertisements promising super normal returns corroborates the same point and will protect novice investors from mis-selling and misleading. 

DIY investing does not require you to be a financial expert but it is important to understand your unique financial condition and your future requirements. The risk of doing this exercise yourself is that it may lead to missing or forgetting important elements that can impact your financial future. Even if you are comfortable in doing the financial planning and investing yourself, having someone to guide you with the process and to cross-check your decisions could go a long way in helping you achieve your desired financial goals.

Disclaimer: This write up is solely for educational purposes. This in no way should be construed as a buy/sell recommendation. Please consult your investment advisor before investing.

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