By Duma Mxenge
YOU have DIY-ed your kitchen counters, spruced up your bedroom and beautified the bathroom. Now, maybe it’s time to turn your DIY talents to something else: your finances.
DIY investing means managing your investments yourself. It means taking control, plotting a plan, gathering your tools and team, and staying the course to reach your investment goals.
Here are some top tips for DIY investing:
You don’t need a finance degree to DIY
Curiosity and a willingness to learn are the two greatest attributes needed to master DIY investing. Don’t be afraid to ask questions, seek help from your financial adviser, and leverage learnings from free and online resources.
Ultimately, DIY investing means being an active participant in your investment plans and owning any decision-making. You don’t need any qualifications to have ownership over your finances; these are your assets, and it’s your responsibility to make the right decisions to live with financial confidence, now and in the future.
What are the benefits of DIY investing?
This biggest benefit is that you’re in the driving seat. You make the decisions and have greater control over your investments. Doing it yourself can also reduce fees, although it’s always wise to invest in sage advice from a trusted adviser to set yourself up for success.
What are the potential pitfalls of DIY investing?
Choosing an asset that doesn’t align with your risk tolerance and timelines could be a potential pitfall. For example, investing the bulk of your retirement savings in cryptocurrencies the year before you retire could bring a lot of uncertainty and prospective losses, given the massive swings in value that this asset class could experience.
Risk means the uncertainty and swings in value related to a particular investment or fund. Generally, riskier assets may yield greater returns, but more conservative assets come with less volatility. You need to understand yourself and how much risk you’re willing to tolerate.
You also need to know your goals and their timelines. The magic of compound interest, for example, can only really be capitalised on over a longer investment horizon.
Finally, it’s important to understand any fees you’re paying. These can be a performance drag, so try to keep them to a minimum.
How to mitigate risk and make the most out of self-directed investing
Know your risk tolerance: introspection is key to investing as it’s critical to understand yourself. It’s also vital to know and understand what you’re invested in – and why. This requires your investment partner or platform to be transparent with you, coupled with proactivity on your side as you seek to know more.
Lastly, don’t be in a rush to start big in the hopes of winning big. Once you’ve done your research and have a plan, it’s okay to start small. Investing is a long game and even the smallest amounts add up. Question anything that sounds too good to be true: it probably is.
To make the most of self-directed investing, you need to have a genuine curiosity for it. Sometimes information won’t come to you, so you need to go and find it. Seek guidance when you need to; investing by way of intermediaries is a great option as well.
What to do before you take the DIY plunge
Consider chatting to a financial adviser or do as much self-directed research as possible before diving into your DIY adventure. The markets are always evolving, so you can never know everything, but you can know enough to have the confidence to start the process and learn as you (and your investments) grow.
Many people adopt a ‘hybrid model’ and do some of the investing themselves and some through a brokerage. It all depends on your goals, personality and affordability.
There’s no one-size-fits-all formula. It’s all about you – how you prefer to learn and invest and what you’re willing to do to make it work. Make it your own, have confidence in yourself, and just start the journey.
* Mxenge is a business development manager at Satrix.
PERSONAL FINANCE