Published On
October 5, 2015

If you ever have the drive to manage your own investments, you might want to reconsider. Do-it-yourself private wealth management is usually not a good idea for retail investors for a myriad of reasons.

Managing your assets yourself is an appealing option for many. Maybe you find the process interesting from an intellectual standpoint. Perhaps you have been unimpressed by the recommendations offered by professionals thus far and seek alternatives. Maybe you are budget sensitive and wish to implement your wishes without incurring fees. You may prefer not to delegate control to others. These are common reasons why investors attempt to manage their own assets but for most retail investors, there are several reasons to avoid do-it-yourself (DIY) investment strategies.

1. Getting Swept Away with Enthusiasm

When you’re watching your own investments on a regular basis, it’s easy to get caught up in the moment and lose sight of the past. Last quarter is a distant memory, let alone 2008. This can make it easy to assume that things will continue along the same path they have in the recent past, moving along in a single direction.

It’s difficult for many investors, especially the young, to even recall a time when things were different than they are now. Take interest rates, for example. A long-term view shows us that interest rates have moved from high to low rates, but young investors may never have experienced a high-interest rate/high inflation environment. This can make it easy to discount the possibility of such an event and its potential effect on the portfolio.

2. Being Influenced by Gurus and Pundits

We are all well served to seek guidance from those who have expertise in a given area, but the potential noise on Wall Street can be overwhelming. The problems with relying too heavily on your favorite talking head are numerous. They could have a conflict of interest, resist the legitimate urge to reverse a previous public stance by digging in further when markets do not share their opinion, make statements based on publicity rather than sound advice or simply make mistakes like the rest of us. Most importantly, your public “money guru” doesn’t know your situation and general advice may not be a fit for you.

3. Considering Market Returns Only

It’s certainly possible to make money in the markets, although this is only one way to make money. Try not to ignore the possibility to spend less, take advantage of your employer’s retirement account match, or growing a business.

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4. Failing to Save

It’s easy to focus exclusively on making money in the market rather than maintaining your emergency fund. You want to make more money, not save what you’ve made. This can get in the way of retirement savings or other financial objectives.

5. Ignoring the Effect of Taxes

Getting a good return is great but only as great as the amount you can keep. When you’re focusing on the return of your investments, it’s easy to ignore taxes. You might be excited to find yourself “up 10%” for the year, but the frequency of trades common for many DIY investors means that the return may be substantially reduced by taxes. For positions held less than one year, this will usually be at the less favorable ordinary income rate as opposed to the investment rate for capital gains enjoyed by long-term investors.

6. Neglecting Your Emergency Fund

We all need savings in the event of an emergency. This can be anything from an unexpected auto repair to multi-month unemployment. It’s generally a good idea to have six months of expenses in savings.  Most people have far less, and many DIY investors are tempted to ignore their savings in favor of their investment funds.

7. Emotional Reactions to Negative Returns

Unfortunately, our returns will not always be double-digit and sometimes Mr. Bear shows up a bit more frequently than Mr. Bull. It’s easy to have an emotional reaction to these experiences rather than pulling back and looking at the long-term picture. Consistent reasonable returns with the effect of compounding can be much more important than what happens from day to do, but this can be difficult to recognize in the moment.

8. Confusing the Market and the Economy

We listen to what we hear regarding the economy. Every time we turn on the news and hear that a new plant is being built or another is leaving, we pay attention. These issues in the economy may or may not have an effect on our investments, or may have a different effect than the ones we assume. History is full of difficult periods in the economy that were good for the market as well as the reverse.

9. Focusing on Money at the Expense of Quality of Life

Many investors underestimate the time that properly managing not only their investments but all financial aspects of their life can take. The complex process can involve multiple investment accounts, insurance policies, estate planning documents and the integration of those things and more with one another to arrive at goals holistically. This is yet another reason to consider professional guidance with your financial decisions.


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