What is Do-It-Yourself (DIY) Investing?

Do-it-yourself (DIY) investing is a method and strategy in which retail or individual investors choose to build and manage their own portfolios. Do-it-yourself investors commonly utilize discount brokerages and investment account platforms as opposed to full-service brokerages or professional money managers.

key takeaways

  • Do-it-yourself (DIY) investing involves individual investors managing their own portfolios.
  • Two phenomena have helped to encourage DIY investing in recent years; the advent of discount brokerages and online investment tools and platforms.
  • Online self-directed brokerage platforms—some strictly virtual, some operated by brick-and-mortar financial institutions—have made DIY investing more feasible and economical, with their discounted commissions and fees and robo advisor-managed portfolios.
  • DIY investing offers individuals more control over their investments and can save them money in fees—but it also puts all the responsibility on their shoulders, and offers less protection in bearish or volatile markets.

How Do-It-Yourself (DIY) Investing Works

Although there have always been individuals who managed their investments, two phenomena have helped to encourage DIY investing in recent years: the advent of discount brokerages and a multitude of online investment tools. Together, they have made it more convenient for investors to build and personalize their own portfolios. It has also introduced hybrid financial advice models that integrate some forms of free interactive personal financial advice.

In building a DIY portfolio, investors can take a number of different approaches. They may choose to invest completely on their own through a discount brokerage platform, paying commissions on transactions, or they may choose a semi-DIY approach that incorporates the use of automated robo advisors, which require only a minimal fee.

Do-It-Yourself (DIY) Investing Tools

For DIY investors, choosing a full-service discount brokerage platform is key to building out an efficiently managed portfolio. Identifying personal investment account aggregators is also critical in performing holistic due diligence and portfolio analysis.

Discount Brokerage Platforms

Online self-directed brokerage platforms take a variety of forms. Some operators are strictly digital: the likes of E*TRADE, TD Ameritrade, and Robinhood, among many others. But today, most financial institutions and even many banks offer their customers a self-directed online brokerage account.

For example, Capital One, Citibank, and Wells Fargo all offer investing platforms. Mutual funds giant Vanguard provides one of the most popular do-it-yourself platforms for investors, with managed funds and customized accounts for retirement investing. One of its chief competitors for investor dollars is venerable brokerage Merrill Lynch, which attracts DIY-ers with its Merrill Edge.

Almost 20 years into the 21st century, most of the discount brokerage space has consolidated into online investing.

For the most part, these platforms leave it up to you to figure out which investments are the best, but they typically offer a suite of research and analysis tools, as well as expert recommendations and insights, to help you make informed decisions. You are then on your own to execute the trades to build your portfolio through their website or mobile app.

These platforms charge a per-transaction commission, usually ranging from $4.95 to $9.95 per stock trade, and an extra $.50 to $1.00 per options contract. They let you trade on margin, create options strategies, and invest directly in mutual funds as well as individual stocks, foreign exchange (forex) and exchange-traded funds (ETFs).

If you’re only going to make a few trades a year, you may want to pay a little bit more per trade in order to get access to higher-quality research and analysis. If you’re a day trader, you’ll probably want to consider a site that hands out free trades to their most active users.

Fund Family Accounts

Fund family accounts are an option for investors who choose to build portfolios of open-end mutual funds transacted directly with the fund company. A DIY investor could build multiple fund family accounts or work with a single investment company for all of their needs.

Fund family accounts also provide the benefit of exchange privileges. Exchange privileges allow an investor to exchange funds within the fund family. Exchange privileges typically incur low or no transaction costs. They can provide the benefit of fund exchanges as a way of managing investments through different market conditions. Exchange privileges can also help DIY investors to transition fund investments from aggressive to conservative holdings over time as they reach retirement.

Robo Advisors

Robo advisors offer investors the option to automate portfolios with a strategy built on modern portfolio theory. These portfolios typically have a low annual advisory fee. Robo advisors use technical trading algorithms to dictate their strategy; while investors can have greater exposure to all types of potential investments, robo advisors generally use low-cost index funds. Robo advisor services also typically provide frequent rebalancing, which can help an investor keep portfolio allocation in line with their objectives and avoid weightings drift.

Personal Account Aggregators

With so many platforms and accounts to choose from, many DIY investors seek the help of personal account aggregators as an administrative tool for holistically monitoring budgets and investments. Betterment and Quicken offer two of the best, combining automated investing with financial planning services and recommendations.

Pros and Cons of Do-It-Yourself (DIY) Investing

Do-it-yourself investing can save investors to save substantially on fees. It also gives investors the independence to make their own investment decisions on their own time, and according to their own values.

However, DIY investing does lack some of the advantages that come with receiving professional advice and advisory services. An investor is on his or her own, and the learning curve may be steep. Although studies abound that show passive investments that track market benchmarks (which robo advisors mainly do) perform just as well or even better than most actively managed funds, when a human manager is good, he or she is very, very good—and can beat the market. Plus, good portfolio management isn't just about posting profits when the market's up, but curbing losses when it's down. That can be hard for an amateur, or an index-tracking robo advisor, to accomplish.

Furthermore, effective financial advisors not only build and monitor investment portfolios, but offer financial advice in all areas of their clients’ lives and provide auxiliary services such as insurance, estate planning, accounting services, and lines of credit, either themselves or via a referral network.