There are 2 ways to manage your investments.
The first is to do it yourself (DIY), ie DIY investing.
The second is to have it done for you, either by a human fund manager (unit trusts) or by a complex computer algorithm (robo-advisors).
In this post, I’ll try to cover everything you need to know about DIY investing so that you can decide if this is a suitable option for you.
What Is It?
As its name suggests, DIY investing means you’re fully in charge of your investments.
Every decision is made by you – what to invest in, how much to invest, when to invest, at what price to invest, etc.
With DIY investing, since you get to decide everything, it gives you the most flexibility.
You get to customise your investment portfolio exactly the way you want it. Which asset classes to invest in, what exactly to invest in, how much to invest, and so on.
This isn’t possible with unit trusts (UTs) or Robo-advisors (RAs) because all these decisions aren’t within your hands.
The only decision you get to make when it comes to UTs and RAs is which portfolio to invest in.
Beyond that, you’d have to accept everything as they are, even if you may not agree with them.
2: Lower Fees
DIY investing also means you get a say in how much to pay in fees.
What to invest in, how often to invest, how much to invest, and which brokers to use to invest are some factors that will determine how much you ultimately pay in fees, which are all up to you to decide.
It is also in your best interest to minimise fees since this means you get to keep more of your investment returns.
With UTs and RAs, the fees are usually fixed, so you know how much you’ll be paying and there’s no wiggle room.
For example, Syfe, a popular RA, charges an annual management fee of 0.65%, which amounts to 65 SGD for a portfolio of 10k SGD.
Meanwhile, DIY investing allows you to choose brokers that don’t charge any annual fees, like Tiger Brokers.
If you invest 10k SGD with Tiger Brokers, you can pay as little as 2.13 USD in fees (inclusive of GST) if you invest in a lump sum.
This is significantly lower than 65 SGD, and this disparity will only worsen as your portfolio grows in size because the fees charged by UTs and RAs tend to be % based.
DIY investing means you are fully responsible for your investments.
In order to ensure that you don’t make significant mistakes and lose a lot of money, you’ll probably want to thoroughly educate yourself.
This means developing a strong understanding of investments, learning about various investing strategies, and etc.
Ultimately, all this knowledge that you garner will make you self-sufficient and aware when it comes to investing to help you make sound investment decisions on your own, without needing to rely on anyone or anything else.
This understanding and awareness of investing can help you to stay the course in your investing journey, through the ups and downs that will come inevitably, and allow you to accumulate wealth.
With UTs or RAs, this may not be the case – since you don’t have to make many decisions, it’s not as important for you to have all this investing knowledge.
Why Not DIY?
1: Expensive To Diversify
Many online brokers charge a minimum commission fee for each trade you make. So the more trades you make, you more you pay in fees.
As a DIY investor, if you want to diversify your portfolio, you need to buy the relevant assets on your own.
Say you want to diversify your portfolio by investing in large-cap stocks, small-cap stocks, long-term bonds, short-term treasury bills, and gold.
Assuming you use 1 ETF for each asset class, it means you have to invest in 5 ETFs.
If your investment strategy is to DCA every month into each of these 5 ETFs, it means you will have to make at least 5 trades every month and incur the commission fee 5 times/month.
Even with a low-cost broker like Tiger Brokers/Moomoo, that works up to ~10 USD/month.
If you were using a RA instead, their portfolios often include a large number of ETFs with no commission fees. So you’d have a diverse portfolio without having to worry about commission fees, though you will be charged a management fee.
However, it should be noted that this disadvantage of DIY investing can be easily worked around.
In our example, instead of investing in all 5 ETFs every month, you could choose to invest in 1 or 2 ETFs every month instead.
You’d just have to invest in different ETFs every month to ensure that you’re invested in each asset class according to your desired allocation.
So if your target is to hold each of these 5 asset classes equally, you can invest equal amounts of money in 1 ETF/month for 5 months to get your final desired portfolio.
Of course, the drawback here then is that you don’t own a diversified portfolio immediately.
2: Steep Learning Curve
If you grew up in an environment where no one ever talked about money or finance, everything about investing will feel foreign.
But in order to make the best decision for your finances, there are many things you have to learn.
The fate of your childhood savings and hard-earned money will depend on the investment decisions you make, so there’s a lot at stake.
General concepts include why you should invest, compounding, diversification, risk, asset classes, portfolio allocation, tax implications, investing mistakes to avoid, and etc.
More specific things include ways you can invest, what to invest in, how to start investing, which platform to invest with, and etc.
With so many things that you need to learn about, it can become extremely overwhelming and time-consuming, which may discourage you from moving forward in your investing journey.
The light at the end of the tunnel though, is that once you’ve nailed down an understanding of investing, things get a lot simpler.
3: Prone To Mistakes
Being in charge of your investments as a DIY investor also means that there is a higher risk of you making mistakes.
Even if you know all the mistakes that you should avoid, it’s hard to say that you will be able to prevent yourself from making those mistakes until you’re actually put in that position because you don’t know how you will react.
For example, a well-known mistake is panic-selling your investments during a market crash.
While it’s easy to say and think “just don’t sell”, seeing your investments crash to a fraction of their original value may invoke some fear in you that you might really lose all of your money if they continue crashing, and cause you to make the mistake of selling.
Investing in UTs/RAs doesn’t prevent you from making mistakes, but since the responsibility of managing your investments now lies with an experienced fund manager/smart computer algorithm, the risk of you making a mistake is reduced.
Who Is It Suitable For?
You should only consider DIY investing if you are interested to learn about investing in general and can afford to commit time to learn it.
This will ensure that you equip yourself with sufficient knowledge and do your due diligence before making investment decisions, reducing the risk of you making mistakes that can be avoided.
You can also consider being a DIY investor if you want to be in control of your investments or to minimise fees.
DIY investing is the only way you can customise your investment portfolio exactly the way you want it, and you can also control how much you pay in fees while you’re at it.
How To Get Started?
1: Hit The Books
The first and most important step to getting started with DIY investing is to educate yourself.
Information can be found in many different formats – books, ebooks, podcasts, videos, blogs – so there’s no excuse for skipping this step.
You can choose your preferred style of learning and start from there.
It is paramount to have a strong fundamental understanding of investing before you actually start DIY investing because you are your only line of defense when it comes to safeguarding your money.
2: Decide What To Invest In
When you feel ready to start investing, you need to decide what you want to invest in, and you should have some idea regarding this based on everything you’ve learned so far.
This is probably a broad ETF like an S&P 500 ETF or an all-world ETF, though it doesn’t have to be.
Most importantly, it should be something you understand and feel comfortable investing in.
3: Open A Brokerage Account
After deciding what to invest in, you’ll need to open an appropriate brokerage account.
The broker you use needs to be one that has access to the stock exchange where your desired investment is traded.
For example, if you want to invest in VOO, you’ll need to use a broker that has access to US markets since it trades on the NYSE.
Or, if you want to invest in CSPX, you’ll need a broker that has access to UK markets since it trades on the LSE.
Once you’ve found the best broker to use for your investments, all that’s left is to open an account, fund it, and start investing.
To save you time when it comes to searching for brokers, here are my recommended brokers to use for investing in the most common countries, along with the relevant trading fees.
SG/HK – Tiger/Moomoo
US – Tiger/Moomoo/IBKR
UK – IBKR/SC Online
|SG||0.08%, min 2.88 SGD||0.08%, min 2.50 SGD||0.06%, min 2.49 SGD||0.20%, min 10 SGD|
|HK||0.06%, min 15 HKD||0.08%, min 12 HKD||0.03%, min
3 HKD, + 15 HKD
|0.25%, min 100 HKD|
min 1.99 USD
min 0.35 USD
min 1.99 USD
|0.25%, min 10 USD|
|UK||N/A||0.05%, min 1 GBP||N/A||0.25%, min 10 GBP|
You can check out this post for a step-by-step guide!
DIY investing is a great way to invest because it allows you to customise your portfolio while minimising fees.
While the learning curve is steep, the knowledge you gain will make you self-sufficient and reduce the risk of you making mistakes.
If you want to be a DIY investor, make sure that you commit both the effort and the time required to educate yourself sufficiently.
Hopefully, this post gave you an idea of why DIY investing may or may not be something you’d want to try out.
Personally, I enjoy being a DIY investor and staying on top of my finances because I don’t believe that anyone would care more about my money than myself – unless they’re being paid, of course.
If you think DIY investing sounds scary, you can check out this post about some misconceptions surrounding it.
Are you/will you be a DIY investor? Why or why not? Let me know in the comments below!