The #1 struggle of DIY investors

Waterchase Life Magazine 

May 2020

I have one question for you today.

Would you be ok with diagnosing yourself if you had symptoms of a serious disease? (Assuming you aren’t a doctor, of course!)

Or let's say your car needed a new engine. Would you tackle that project on your own?

OK—so that was actually two questions. But I bet your answers to both were likely a resounding “No!” And few people would blame you for not wanting to navigate major health or mechanical issues on your own.

Yet most people go their entire lives managing their finances without professional help.

Why is that? Well, one big reason is they think they can do it on their own. There are other reasons, as well.

• Some people think they can’t afford financial advice.
• Some don’t understand exactly what a financial advisor does or how they may benefit from one.
• Others assume they will have to buy unnecessary products or services.

Let's look at those reasons, starting with the most common one.

 

Do DIY investors earn more money?

Typically, no. One study shows the average DIY investor earns much less than average market returns.

And the reason is very simple and very human. Emotions. Emotional decision-making is extremely difficult to avoid--because it often disguises itself with logic. 

There’s an entire field called behavioral economics that studies why investors act the way they do. Let’s take hindsight bias. It makes you believe you knew something was going to happen. This dangerous bias can trick investors to put too much stock into their ability to predict events. And as far as I know, no one has a crystal ball!

Another example is risk aversion bias. It’s safe to say that no one likes losing money. But some people let the fear of loss keep them from taking calculated risks. We see this bias when investors hold on to a bad investment for too long, trying to “make back” the money they’ve lost.

So, why hire an advisor?

When you take the DIY route, you are more likely to make irrational investment decisions based on your emotions. A financial advisor can help you see decision biases that are in your “blind spot”.

An advisor can also help you meet your financial goals. Yes, there’s saving for retirement, but that’s just one example of a goal.  An advisor can help you with estate planning, paying off debt, managing taxes and more.

How do you find a good financial advisor?

Much like finding a good doctor or a mechanic, you have to look around and ask questions. 

Of course, you want someone with professional certifications (you wouldn’t let a self-taught doctor operate on your heart, would you?)

Some advisors receive commissions for selling certain products or investments. Because of this, they can have a conflict of interests. Always ask how your advisor gets paid!

Water Street Wealth Management gets paid for managing investments and delivering financial planning services. We don’t receive kickbacks for selling financial products. We have a legal obligation to give YOU unbiased recommendations that are in YOUR best interests.

So, if you are ready to see what a professional can do for you, reach out today. Let's talk about how we can help!