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The ABC of DIY

Should retirees attempt do-it-yourself investing, or stick to managed funds and safer options?

Thinking of having a crack at do-it-yourself (DIY) investing? You wouldn’t be the only one. Lower fees and the hope of outperforming the average financial adviser can lure people into giving it a try.

Fortunately, there are now plenty of tools and information available to help people along the way. But it takes more than access to an online investing account and a wealth of information to make a success of hands-on investing. So how do you know if you’re cut out for doing some DIY?

How’s your financial literacy?

Maybe you feel confident investing in cash, property or shares. But what about other forms of investment? The ASX Investor Survey 2017 shows that even though Australians have access to more complex investments such as hybrid securities, we don’t necessarily understand them or feel confident about putting our money into them.

The survey also highlighted that our understanding of some fundamental investment concepts can be lacking. Only one in three Australians report that they understand the risk/return trade-off. Even fewer have an understanding of diversification.

If you’re going to launch into DIY investing, it pays to have your head wrapped around some basics.

What’s your strategy?

One of the mistakes DIY investors can make is following the latest trend. That can lead to a portfolio that is a hotchpotch of investments rather than one driven by an underlying strategy. A strategy should also include thinking about mitigating against various risks associated with investing, including the risk of having all your eggs in one basket. Successful investing relies on having a diversified portfolio. Then, if some of your investments are heading south, your total returns are still protected by the investments that are performing well.

How full is your diary?

If your perfect retirement includes plans to travel frequently; work on your golf handicap; and spend time with the grandchildren, you may not have the hours in the day needed to keep on top of a DIY portfolio.

To stay ahead of market trends and movements, you’ll ideally be a bit of a news junkie; politically aware; across economic data; and up-to-speed with foreign events and how they may impact markets. 

How disciplined are you?

Making good returns from investing can require a cast-iron will. It’s important to ask yourself some tough questions before entering the DIY fray. Do you panic and tend to bail out of your investments and convert to cash when markets turn volatile? Are you someone who procrastinates or finds it difficult to make a decision when it comes to taking financial action? Does the thought of buying a stock when the price is dropping make your stomach churn? If your emotions are likely to get in the way of taking decisive, disciplined action on the investment front, the result can be a portfolio delivering lacklustre returns.

How will your DIY investments support your overall financial goals?

A financial plan isn’t just about putting money into a bunch of investments. When you go to see a financial adviser, they’ll ask you lots of questions about your financial needs and goals. A financial planner will then consider the best structure for holding your assets; the tax-efficiency of various options; and your need for income or capital gain. As the ASX Australian Investor Survey 2017 shows, these were among the top reasons why 52 per cent of retirees surveyed said they sought financial advice either from a financial adviser, full-service broker or a lawyer: because it was tailored to their personal circumstances; because it helps them diversify their portfolios and minimise risk; and because it helps them navigate the administration and tax requirements of investing.