Mayank Shah is a busy consultant at a global consultancy firm and typically works 6 days a week and 12 hours a day. He is on the trot most of the time and hardly gets time to spend time with his financial advisor to plan out his future. That was when Mayank found out about DIY investing offered by his broker. Do it yourself (DIY) investing is the latest trend in the investment and financial planning business wherein clients are empowered to plan and implement their financial future on their own without the help of an advisor. The whole idea is that you can actually execute your plan and also monitor your plan on the go by just logging into your laptop or even by loading the app on to your mobile phone. So what are the pros and cons of DIY investing in stock market today and how does do it yourself investing work in practice?
Most of these DIY platforms are not just pain investment and advisory platforms but they take a lot of pains to customer solutions for you. For example, these DIY platforms will use the power of big data and algorithms to help you find the right financial solution and also to monitor your financial portfolio appropriately. What are the DIY investing pros and cons? Here are some of the key merits of the DIY approach.
Advantages of the DIY approach to investing
DIY investing is able to bring the complete value chain from the point of identifying your investment matrix to actually investing and monitoring under a single umbrella. You have all your investments easily accessible and in one place. That is simplicity.
DIY investing is anything but plain vanilla advice. It is based on a lot of human intelligence that has been built into the system. Such systems are fine tuned with artificial intelligence and machine learning capabilities so that they can sift through mountains of data and also replicate your thinking process.
DIY investing is a lot more agnostic in any market conditions. Over the long term, financial planning is all about the discipline of investing and the process. Such routine things are best handled with the intelligent use of data. When there is too much of human involvement in any process, it tends to make the process vulnerable to the person’s line of thinking. DIY being an agnostic platform overcomes that bias.
Finally, DIY can evaluate more options than the human brain can ever imagine. It is like Gary Kasparov versus the Big Blue. Kasparov may be a skilled and crafty player but he will never be able to iterate as fast and as expansively as the super computer can manage. The same is the case with auto investing. With your best of skills and experience, you can never match up to the power of big data and high end computing. You may not get the right decision, but the decision at least will be based on a lot more comprehensive and actionable data.
Risks inherent in the DIY investing approach
While the DIY approach to investing does look quite appealing, there are some basic questions about whether it works in all conditions. There are few fundamental questions you need to ask yourself before
Do you have the time to do the research? At the end of the day, if you are into DIY investing, you need to take the research call yourself. It is your choice whether to buy X Equity Fund or Y Equity Fund. Be clear that you are equipped to take these decisions with a reasonable degree of confidence and competence.
Is this the first time you are attempting DIY investing or have you tried it before. In fact, if you are first time investor, it is always better to go through a proper financial advisor as you need to make right decisions at crucial junctures. Also, you may not have the required skills to review and rebalance your portfolio.
Can you afford to lose any money? This is a very fundamental question you need to ask yourself. When you are into DIY investing, you are largely answerable for your decisions. You need to be doubly careful when you are investing in equities via DIY method. At least, when you have an advisor you can fall upon for them support to help you out of a situation when you equity decisions go wrong. Your risk appetite and your risk capacity mattes a lot.
Finally, machines are also likely to commit mistakes. All machines and the algorithms are programmed by humans. In the last few years, we have seen number of such blunders. We have seen fat finger trades making a mess of the markets in a short span of time. We have seen algos going into endless loops in extreme conditions and giving atrocious results. As good as the algorithm and the programming may be; it is still prone to human error. That is something you will have to provide for while adopting a DIY solutions.