Do-it-yourself (DIY) investing is rising in popularity in 2023. Yet is it a better route than using a financial adviser? Broadly speaking, DIY investing can give you more control and flexibility over your portfolio. Yet it also involves greater risk since you are making decisions alone – you have no professional adviser to provide an objective second opinion. Below, our financial planners at Vesta Wealth explore why DIY investing is on the rise, how it differs from using a professional, and why the latter is ideal for those looking for more integrated planning.
What is DIY investing?
DIY investing is when you choose to build and manage a set of investments on your own. This may involve opening an account with a digital platform and independently building a portfolio of funds, shares, or other assets. In practice, it is often a form of “active investing” where investors pick individual stocks, commodities and cryptocurrencies and hope to sell them at a profit later. It must be said that this strategy of trying to “time the market” rarely works.
Most DIY investors will be heavily guided by emotions when making decisions. For instance, investors might buy a rising stock, not realising that it is near its “peak”. When the stock falls the investor panics and sells, crystallising their losses and leaving them feeling wounded. This can then lead to more irrational decisions (e.g. buying “riskier” stocks) to try and make up for the losses, which often leads to further losses. The result can be a costly spiral downward.
Why DIY investing is on the rise
Several factors are likely driving interest in DIY investing. These include the proliferation of easy-access investment platforms and apps, new cryptocurrencies which claim to offer high returns, and a rising demographic of Millennial/Gen Z investors who have looked to capitalise on recent market crashes – such as the “Covid crash” in 2020 – to try and generate wealth. Younger investors are more likely to get their financial advice from social media, turning mainly to Reddit and YouTube. Here, investors need to be especially careful.
Whilst regulators like the FCA are making progress in highlighting social media scams, these platforms are still largely governed by forces outside the UK (e.g. Silicon Valley-based directors) and algorithms do not necessarily push the most helpful content to the top of users’ news feeds. Rather, popular financial content is likely to get the most exposure due to its potential to drive clicks and advertising revenue.
Investing with a financial adviser
To be a UK financial adviser, the professional must pass a stringent set of qualifications and be regulated by the FCA (Financial Conduct Authority). Therefore, getting investment guidance and support from a recognised financial adviser grants you additional protection as an investor. The information you receive will be grounded in thorough research and time-honoured principles. A financial adviser will also be well-versed in risk management, helping you to build a more robust portfolio that can help you weather harsh market conditions.
Investing with a financial adviser does bring an additional cost. Yet this often pays for itself by helping you avoid costly mistakes that you might otherwise have made using a DIY approach (e.g. investing in a fund with poor fundamentals). This route also does not necessarily mean you need to sacrifice your investment options. An independent adviser, for instance, can advise on opportunities across the market and is not limited simply to specific products or funds (which is what a “restricted” adviser does).
The other advantage of a financial adviser or planner is more integrated, holistic planning with your wider goals. For instance, how does your investment strategy affect your tax plan and estate plan? How might it bear upon your pension and retirement goals? A financial adviser can help you optimise each of these areas and tie them together under a unified plan, working towards your goals. As an example, suppose you want to grow your wealth by investing and also leave a meaningful future legacy for your children. Here, an adviser may suggest a pension strategy due to the tax advantages on offer. In particular, in 2023-24 pension pots in most instances can pass down to loved ones without inheritance tax after your death. Your contributions can also benefit from income tax relief during your career (boosting your returns) and are free from capital gains tax and dividend tax.
When is it right to work with a financial adviser?
DIY investing with a small, insignificant amount of money can be a fun way to learn about investing. However, those looking to build a holistic financial plan will likely get the best results from working with a professional. If you lack confidence or knowledge about financial affairs and wealth building, then a financial adviser or planner can be especially valuable. This person can make sure everything is explained to you in a clear, understandable manner before making big investment decisions. You also have a professional source of reassurance and support if you later have questions, doubts or worries about your portfolio.
Invitation
If you would like to discuss your financial plan and retirement strategy, then we would love to hear from you. Get in touch with your Financial Planner here at Vesta Wealth in Cumbria, Teesside and across the North of England.
Reach us via:
t: 01228 210 137
e: [email protected]
This content is for information purposes only. It should not be taken as financial or investment advice. To receive personalised, regulated financial advice regarding your affairs please consult your Financial Planner here at Vesta Wealth in Cumbria, Teesside and across the North of England.