Many American investors either do not recognize the need for professional guidance when investing or end up ignoring these recommendations if they ever seek them.
According to a recent trend survey by eMoney Advisor, 34% of Americans single-handedly manage all of their investments. Similarly, The Wall Street Journal reports that individual investors were responsible for about 19.5% of U.S. equity trading volume in 2020.
These numbers highlight the increasing prominence of DIY investing among Americans. Understandably, the perks of DIY investing are tempting. For example, it is perceived to be cheaper because no fees are involved. It also gives the investor full control over their assets and investment portfolio–they can buy whatever they want whenever they want. But what about the risks?
DIY investing can go wrong in so many instances. DIY investors tend to choose assets based on familiarity or track record, resulting in little or no portfolio diversification. Poor diversification translates to too much or too little risk. In addition, DIY investing is often associated with short-term thinking, panic selling, and overtrading.
To further underline the downsides of DIY investing, here are three examples of when DIY investing can go wrong;
1. Taking more risk than necessary.
Being in charge of your own portfolios brings excitement. You enjoy the act of buying and selling assets so much that you end up taking too many trades. However, taking too many trades does not guarantee much profit. Instead, it means you are paying a lot of commissions and taking too many risks.
Over time, you get sucked into chasing the ups and downs of the markets. Taking too many trades also goes against the thumb rule of diversification. You might even find an asset doing well and end up going all in on them–a significantly risky proposition.
2. Trying to time the market
Timing the market based on your predictions is a wrong move with major consequences. Unless you are a clairvoyant, no one can accurately and successfully predict where or how the market will swing next. Likewise, we cannot predict what will happen tomorrow or how these events will affect the investment scene.
DIY investors believe that they can buy and ride the highs and lows with the right timing. However, any investment move that is not based on facts and data is only a gamble. Gambling your hard-earned investment portfolio is nothing but a wrong move.
3. Getting emotional.
Like many other things, investments can go wrong when too much emotion is involved. According to Roger S. Balser, the managing partner and chief investment officer at Balser Wealth Management in Avon, Ohio, emotion is a major problem with most DIY investors and their portfolios. “It has been shown time and time again that an investor usually does not do the right thing, and their emotions get in the way.”
Getting too emotional over unavoidable market swings will lead to severe mistakes. For instance, an investor panicking about sudden drops would remove their money–a move that will cost them in the long run.
How do you recover from wrong DIY investment moves?
The only way out of messy DIY investing is to involve the experts. Bringing professionals to assess the situation and provide you with the right way forward can save your investments from collapse.
At EXOS, we help investors remedy their bad DIY investment situations. Our experts are always available to discuss your situation and develop the best solutions. We also provide personalized investment advice that minimizes risks and maximizes returns for both new and experienced investors.
Contact us today to discuss your needs.
