The Risks of D.I.Y. Investing & Financial Planning

In trying to do it yourself, there’s the chance you could do it all wrong.

Many successful people refrain from trying to plan their financial futures. They delegate that job to professionals, as they lack the time, inclination, or knowledge to do it themselves.

This makes sense. It takes years to gain a thorough understanding of financial market cycles and behaviors, macroeconomic forces, investment classes, and wealth management principles. Investors who go it alone may be inviting underperformance. After researching 70,000 portfolios, the investor network Openfolio concluded that the average solo investor realized a return of about 5% in 2016. In contrast, the S&P 500’s total return for the year was almost 12%.1

The learning curve for a do-it-yourself investor may be steep and expensive. Like a basketball team focused only on the fast break, little attention may be paid to defense. A quest for great returns may mean taking an eye off crucial opportunities for tax savings. If the investor succumbs to emotional decision making and market timing in volatile moments, portfolio performance may suffer.

The core problem is mistaking investing for financial planning. A good financial plan is multifaceted; it needs to be. It may contain an investment strategy, a risk management approach, a tax management strategy, and a withdrawal and spending strategy if the client is a retiree. There may be college planning involved and some estate planning as well. Financial planning is both a discipline and a profession, and disciplined investors can see the value in seeking help from a professional.

 

Michael McGinley, CFP ®
Comprehensive Wealth Manager | Tax Advisor
Chandler, AZ 85226

 

Securities and advisory services offered through LPL Financial, a registered investment advisor. Member FINRA/SIPC.