The Pros & Cons of DIY Investment

May 7, 2017 | Andy Blandford

We live in an age where we can access almost any services and Solutions easily and conveniently simply by jumping in our car or clicking a button. And much of the production and manufacturing that supports our consumption is industrialised and digitalised, further expanding the appetite of consumers locally and globally. Yet consumers can easily forget that the food they eat today took a good time to grow, and the Solutions they buy began as various minerals mined from the ground before eventually being delivered as a finished product into their hand. In the context of investment, we have personal on-line trading platforms, high-volume autonomous trading computers, and even robo-advisers to tell you what to do. This instant gratification culture appears to be driving people inexorably away from a key reality: that without luck, it takes time to grow and build something meaningful.

Personal trading platforms and robo-advisers do indeed represent a threat. But in my experience, these are a much bigger threat for you than for me. For example, between 1985 and 1987, many of my clients tried direct share trading in addition to the accounts I managed for them. And things were great until 1987s’ Black Monday where most private investors panicked and got hammered after global markets crashed massively. By the end of October, just 2 weeks later, some markets had dropped 40-60%! While their accounts had also been impacted, we did not panic and simply held our ground. By 1990, all these accounts had recovered and were back into profit.

Why did these investors panic in 1987? Because many private investors have little true understanding or experience of market-place dynamics, and are often emotionally ill-equipped to handle such adversity. 1997 and 2008 also illustrate that 1987 was not an isolated event for private investors. While many investors can and do lose money when they directly and personally trade the markets, they can balance that risk by delegating some of their investments to a seasoned and qualified investment professional.

Yes, cost vs performance is indeed important, but it can be argued that value is far more important. Having a DIY investment is only attractive provided you can defend the principle and performance in the face of adverse markets. If, like 80-90% of investors you panic and sell out, realising sizeable losses when markets crash, then your ‘low-cost’ approach ended up very expensive after-all. If it was that your financial adviser helped you to avoid panic so you didn’t realise a physical loss, you will have [effectively] just recouped these ‘value’ costs, right? And certainly be better off than you would otherwise have been.