As market information becomes more available and accessible to individual investors, more people are drawn to investing do-it-yourself way. However, despite the availability of detailed security information and real-time updates, there is still doubt as to the effectiveness of managing your own investments without hiring a professional.
Financial market research firm, DALBAR, issued a study revealing that in 20 years, from 1990 to 2010, the average annual earnings of unmanaged S&P 500 Index was 7.81%, while that of equity investors was only 3.49%. This means that DIY investing is doable.
However, as far as mutual funds are concerned, individual investors were greatly affected, being unable to manage their emotions. Studies show that investors let their fear overcome, resorting to moving funds close to market tops and selling when an investment is nearing bottom.
To ensure success, assess your emotional make-up before they enter into the game without a financial planner working for them. Too much fear or too much optimism can hurt your finances. As a human being, you can never totally separate yourself from emotions, but make sure you factor in more reason than emotion when you make an investment decision.
Let’s say you have the ideal emotional makeup, but are you good in math? To be a successful financial investor, you need to be a financial analyst. You must have analytical skills and passion for reading and understanding numbers. Don’t just read qualitative reports, which are very easy to manipulate by the way. You must be able to understand what financial statements are saying about a certain company or stock.
Be quick to track your investments and to sort out real-time information so you can make decisions right away. Often, the difference between profit and loss is a second of inaction or action. Yes, you can lose money without doing anything.
Bottom line is: being a financial investor is never easy. Professionals struggle every day to be competitive, so expect greater challenge if you do it on your own. Monitoring investments and stocks alone can already eat up much of your time, and you might need to quit your job. But really, it’s doable and might even be more profitable. After all, nobody knows you better than yourself.