If you are investing your hard-earned money on your own, then you’d better be good at it! But it takes a lot of effort to become skilled in do-it-yourself (DIY) investing. The following are key steps you need to take to gain proficiency in DIY investing.
- Gain knowledge: Understand the world of investing. It is an intellectual field, and you would need to spend many hundreds, if not thousands, of hours to gain preliminary idea of investing, covering investment concepts, market dynamics, and financial instruments.
- Devote time: Keep up to date by spending a few hours every week on the latest happenings in the financial world. This requires a lot of reading and analysis in a disciplined manner. You would need to consistently sacrifice time from your other activities (family, work, friends, hobbies) for this activity. You need to be mindful of the opportunity cost.
- Prepare for mistakes: Expect to make mistakes while investing, and take those mistakes in your stride. That means, be ready to lose money while making your own amateur decisions.
- Assess your aptitude: Check if you have the necessary aptitude to perform well in investing, which is an intellectual activity. If you were academically average in your student days, or your IQ is not on the higher side, there is a high chance that you might not do well while investing on your own. It is no wonder that high-quality investment professionals dedicate significant effort to hone their skills and command high remuneration.
- Take care of biases: Work towards ensuring that you are not affected by various behavioural biases such as loss aversion, anchoring, and confirmation bias. These biases frequently lead DIY investors astray.
- Take care of emotions: Manage your emotions so that you are not affected by psychological and emotional challenges such as overconfidence, panic selling, or herd mentality, which can undermine rational investment decisions.
- See through skill-versus-luck: Develop the mindset to distinguish clearly between investment outcomes influenced by genuine skill versus mere luck. Avoid attributing short-term success entirely to expertise, and focus on consistent processes rather than sporadic wins.
This suggests that only a small section of individual investors are expert DIY investors and, therefore, may not need to delegate their investing activity. However, this is not the case for the rest of the consumers — a vast majority of individual investors need financial advice and investment advice services.
The good news is that with the advent of robo advice, a large number of consumers, who are not investment experts and find the traditional financial advisory service expensive, can avail the digital discretionary investment management service.
Related information
Read the answers to the related questions:
- Should I use a robo adviser or invest by myself?
- Is setting up a family office worth it compared to availing a robo-adviser service for my wealth of $20 million?
- Should I hire a financial adviser to help me invest a small amount, say $5,000, for the long term?
Also refer to the related knowledge resources:
- An introduction to discretionary investment management
- Financial advisers and discretionary investment management
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