What is Do-It-Yourself (DIY) Investing
Do-it-yourself (DIY) investing is an investment strategy where individual investors choose to build and manage their own investment portfolios. Do-it-yourself investors commonly utilize discount brokerages and individual investment account platforms as opposed to full-service brokerages or professional money managers.
BREAKING DOWN Do-It-Yourself (DIY) Investing
Do-it-yourself investing can save investors money on fees. It also gives investors the independence to make their own investment decisions on their own time. However, DIY investing does lack some of the advantages that come with receiving professional advice and advisory services. The advent of discount brokerages and a multitude of online investment tools has helped to encourage DIY investing in recent years. This has made it even 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 or they may choose a semi-DIY approach that incorporates the use of automated robo advisors which require only a minimal fee. Whatever approach is taken there are many offerings and tools in the market that can help all types of DIY investors achieve their goals.
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
Vanguard provides one of the most popular do-it-yourself platforms for investors, with their available brokerage accounts and numerous managed funds and customized accounts for retirement investing. With Vanguard an investor can make directed investments through their brokerage account while also investing in mutual funds and ETFs across a wide range of categories.
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 which may appeal to DIY investors. Exchange privileges are available at Vanguard and through nearly all investment company fund providers. 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 offer investors the option to automate portfolios that are built on modern portfolio theory. These portfolios typically have a low advisory fee. With robo advisor automation, investors can have greater exposure to all types of potential investments that may be a fit for their goals. Robo advisor services also typically provide frequent rebalancing, which can help an investor keep portfolio allocation in line with their objectives and avoid style drift. (See also: 5 Robo-Advisors for 2018.)
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 personal account aggregators. Services from Betterment can also include a robo advice platform with no minimum investment, offering automated suggestions for investments and investment allocations. (See also: The 4 Top Portfolio Management Apps and 4 Best Personal Finance Apps as of December 2017.)
DIY Investing Fees
Overall, do-it-yourself investing can help individual investors to save substantially on fees while also having full control over all of their investments. An array of options and tools exists in the market to help DIY investors achieve their goals through efficient management.