DIY investing stands for Do-It-Yourself mode of investing. A DIY investor manages investments on his/her own. More importantly, the person makes his own decisions and is not advised by any investment advisor.
But despite DIY investing giving a feeling of confidence and self-reliance, is it really a good idea to invest your hard-earned money on your own?
There is no one right answer here.
While some investors are fully capable of handling money matters on their own, there are several others who genuinely mess things up and are not suited to invest without professional advice. So DIY is the way to go for the former. But those in the latter category should realize that taking professional help can really sort their financial lives.
In my view, anyone can be a DIY investor. But not everyone.
But there is a problem - in India, most people don’t want to pay the fee for financial advice. They rely blindly on family, friends, colleagues and these days, googling to decide where to put their money. This might work once in a while. But doesn’t always end well.
If you figure out money, then life can be very easy. But if you don’t, it can be incredibly hard. And many investors feel that what they are doing with their money is the best approach and hence, there is no need for course corrections (which can be easily highlighted by a competent advisor).
To be fair, managing personal finances isn’t rocket science. It is quite simple. And in an ideal scenario, everyone can do it. But still, most people don’t seem to be in control of their financial lives. Isn’t it? They are always worried about whether they will ever be able to have enough money for all their goals at the right times.
It is just like what happens with people’s health. They know what is the right thing to do – exercise regularly, eat in moderation, less processed food, sleep well, etc. But still, most people mess up their health and are unwilling to make lifestyle changes unless things start getting out of hand. The same is what happens with people’s money lives.
Most people make random investments here and there (based on tax-saving needs and random tips) over the years. The result is that they end up with a directionless portfolio of random products that goes nowhere! They get their highs by beating the market (Sensex/Nifty) once in a while and boast about it in public gatherings. But they have no idea whether they are investing enough for all their goals, in the right products or not.
An investment advisor takes a holistic look and the investor’s goals and requirements before charting out a financial plan that clearly tells how much the goal costs, how much to invest for each goal, where to invest, how long to invest, how to de-risk portfolio near goals, how much life and health insurance to buy, etc. These are the key questions that demand answers if you want to sort out your financial life.
If you know the answers to these questions, then you can go ahead with the DIY route. But if you don’t, then please take professional help. A piece of good financial advice is easily worth years of fee that you may pay an investment advisor.
Let’s understand this with a simple example – Suppose you have a 5-year old traditional LIC endowment plan where you invest ₹50,000 annually. The remaining policy tenure is 20 years. Now you don’t want to surrender it despite knowing that these plans give poor returns of just about 5-6% in the long run.
Now if an investment advisor, whom you pay (let’s say) an annual fee of ₹25,000 for financial planning recommends that you surrender the LIC plan and instead invest in equity funds, then do you know how much difference this piece of advice makes in 20 years?
A ₹50,000 annual investment for 20 years in LIC traditional plan will result in a corpus of about ₹17-19 lakh. But if you do what the advisor told you, that is invest instead in equity funds for the same duration, you may end up with a much larger corpus of about ₹36-40 lakh (assuming 11-12% equity returns).
As you can see, the cost of investing in the wrong financial products is much higher than the cost of getting professional investment advice.
You may still feel that you are capable of DIY, but if you see signs like – keep postponing investments due to lack of time, don’t have much assets despite earning well for years, generally end up with poor returns, have no idea how much to save for important goals and whether you are on track for these goals or not, have a messy disorganized state of finance, then you clearly need professional help. Don’t unnecessarily overestimate your DIY abilities. Accept that you need help. It’s okay. Don’t delay it any further.
And if you want the right advice, make sure you approach the right person. Product sellers, agents and distributors may not offer comprehensive and unbiased advice. So if you wish to take professional advice and want to get yourself on the right financial track, approach a SEBI Registered Investment Advisor (RIA) who are licensed to provide conflict-free, unbiased and proper advisory services.
Note – I am a SEBI RIA myself and hence, it is in my interest to show why RIA model works better than services provided by others. Just thought would highlight this myself. But that doesn’t mean that what I wrote above is not true. I have just stated the facts.
Dev Ashish is a SEBI-Registered Investment Advisor and Founder (Stable Investor). He provides fee-only financial planning and investment advisory services to small and HNI clients across India.