Many investors – not happy with their advisers for whatever reason – feel they can do a lot better themselves, especially when the market is booming and their friends and co-workers are bragging about their winning investment performance.

DIY investing can appear to make sense for a lot of people.

However, studies have shown that a large population of DIY investors are earning painfully low returns and underperforming indexes.

Related: How the behaviour gap affects investor returns

From the person who put his entire LIRA monies into Nortel stock to the one who keeps 80% of her money sitting in cash waiting for the perfect opportunity, investors are leaving massive returns on the table.

DIY investing takes time, knowledge and confidence to be successful.

It’s About Time

Managing your finances is on your to-do list. You mean to set aside a Sunday afternoon to put a financial plan into action. Then work and family life gets busier, you have errands to run, and your intention gets put on the back burner. It can be easy to let it slide.

This is especially true if you are trying to manage multiple accounts – RRSP, LIRA, TFSA, RESP and non-registered accounts – for both yourself and your family.

It takes time to develop a total investment strategy, research to find appropriate investments, and periodically assess your holdings.

You want to save money

There’s a lot of buzz in the media about how investment fees, expense ratios, and trading commissions are eating up your long-term returns. But, DIY investing is not always saving you money.

Related: 5 challenges DIY investors face

Are you saving money when you:

  • Stay in non-performing funds because you don’t want to pay the back-end load to cash out?
  • Don’t want to pay taxes on capital gains, and then lose the gains?
  • Hang on to losers in hopes that they will rebound?

A good decision is based on knowledge.” (Plato)

There’s lots of information for DIY investors but you need to know how to sift through it.

Many DIY investors have a haphazard investment strategy. They don’t have a clear idea of why they are choosing their asset allocation, where to hold investments for tax efficiency, and the impact of foreign withholding taxes and currency spreads. Their portfolio is a random collection of holdings and they don’t know how it fits together. They rely on luck and hope, not strategic thinking.

Lacking confidence in their own capabilities and trying to take the easy way out, they want someone to make specific investment recommendations that they can implement on their own, or directly copy sample portfolios from magazines and blogs.

Related: Where do you get your financial information?

They react emotionally to financial headlines and invest based on what they see on the news, thinking they are basing their decision on the latest information. Often this information is just someone’s “educated” opinion (or guess) about what looks promising in the future.

Poor decision-making

Some people are just plain bad at making buy-and-sell decisions. They are unable to get the right investment mix, lack diversification, and put all their money into a single “can’t lose” stock.

They have unrealistic expectations for high returns and underestimate their risk tolerance. Knowing that investments can rise and fall is not the same as understanding how you will react to risks.

Memories are short when the stock market is booming, but the number one reason for underperformance is getting scared and ditching investments when the market retreats.

Final Thoughts

Fear, lack of time, and lack of knowledge don’t have to keep you from growing a comfortable nest egg. You shouldn’t try DIY investing just because you want to save fees or you don’t like your adviser.

Related: How my behavioural biases prevented me from becoming an indexer

If you don’t have the time or interest to manage your portfolio yourself, take your investments to someone who does.

In the end, paying for professional money management may be your greatest investment. Financial advisers charge 1-2% of assets and on-line portfolio management services can be less than 1%.

Paying 1% a year, or less, is certainly better than paying 0% and underperforming by 4% or more.


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