The DIY Investment Path

By Jonathan Jackson. Published at Feb 3, 2016, in Features

A lot has been written about Do It Yourself (DIY) investing, mostly about the associated dangers and pitfalls.

A good, basic start, if you want a first-hand account comes from Forbes contributor Robert Laura, who shares his experiences of what DIYers do right and wrong.

There is no doubt, a little professional help can go along way if you are educating yourself about trading the markets, but if you do take the plunge there are certain potential dangers that you should be aware of, particularly if you are a novice investor.

The first is believing everything you read online.

Middletons Securities spokesperson, Nick Loxton, says novice investors could lose their entire life savings by putting their trust into an unknown source online in their pursuit of a quick return or lesser known investment option.

“The adage that too much knowledge can be a dangerous thing rings true when it comes to DIY investors who make decisions based on online recommendations and information, and yet the industry is starting to see a growing number of investors facing financial ruin by going down that very path,” Loxton said.

“Savvy investors are always on the lookout for a potential money-making opportunity, and in our connected world we have seen people become more confident as they incorporate online tools to get information as part of their daily lives, and now buy and sell things online without the assistance of traditional intermediaries.”

Loxton believes the pace of technological change, particularly within the markets – as more and more online traders develop trading tools – will outpace a trader’s capacity to deal with it.

“The thrust of the information and communication revolution is to empower individuals and drive down the cost of living and the cost of doing business, and in that process we can expect to see traditional products, businesses and services lose their relevance, while new ones will be created,” Loxton said.

“The risk to investors is that they will, at least initially, need to have massive amounts of information interpreted, and DIY investors are most at risk of being lulled into the false belief that there is no place for expert financial advice in this new online environment.

“This is not like spending time online to find that perfect holiday destination, only to discover it has no running water and backs onto a garbage dump when they arrive. The risk is far, far greater for DIY investors because a wrong decision can ruin their financial futures – and we already know that people are pre-disposed at badly investing their earnings because they are driven by emotion rather than logic.”

If you do decide to go down the DIY path, heed the warnings and do the research.

There are plenty of trading tools out there, but you need to find one that suits your abilities and goals. Many tools have demo models and it’s worth testing the water, before diving in.

The other qualities you need to have for a decent chance of DIY trading success are patience (investing takes time), discipline, confidence (if you stress too much, don’t bother), risk management (have you diversified or built a trading strategy), experience (go back to testing out the demos) and knowledge of current events, particularly in the volatility of this day and age.

As Mitch Goldberg of Client First Strategy told CNBC: “Investing is not an easy thing to do successfully. Bear markets make all of us look like unsuccessful investors while they last. And this is often when investors walk away from the market. But here’s the key, whether you go it alone or seek out a professional: you have to employ a strategy that includes the possibility of—no, the certainty of—corrections and bear markets.”

Following are a few websites that could help you on your DIY journey, but remember to tread cautiously.

S3 Consortium Pty Ltd (CAR No.433913) is a corporate authorised representative of LeMessurier Securities Pty Ltd (AFSL No. 296877). The information contained in this article is general information only. Any advice is general advice only. Neither your personal objectives, financial situation nor needs have been taken into consideration. Accordingly you should consider how appropriate the advice (if any) is to those objectives, financial situation and needs, before acting on the advice.

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