While it is alright to have packaged, ready-to-eat food or ones ordered from your favorite restaurant, you always get a different vibe from eating self-cooked meals.
Similarly, when it comes to investing, we understand that a retail investor may not have the necessary perks to go all-out on investing on their own and will require the support of mutual funds and smallcases. This article discusses DIY (Do-it-yourself) investment strategy and its value to your portfolio.
As the name suggests, DIY investment strategy or self-directed investing refers to an individual, especially a retail investor, independently managing their financial instrument portfolio. Such DIY investors use discount platforms or Robo advisors to curate a part of their total holdings instead of letting professionals control it completely.
The Indian economy has seen a massive spike in DIY investing in the retail sector in the last couple of years. This is because there have been several discount brokerages, such as Zerodha, Angel One, and Upstox, that have sprung up and gained immense prominence. The increased penetration has allowed retail investors to undergo research, curate and tweak their portfolios.
The first and foremost advantage of DIY investment is freedom. You are free to make your decisions, choose the right time to invest, and have a plethora of securities to choose from. Given that an individual picks up and manages securities independently, DIY investment has allowed such investors to cut down on fees otherwise paid to professionals. It has also propelled them into being more informed instead of merely depending on professional judgment for their portfolio management.
Like roses have thorns, DIY investors also have to suffer from some potential downsides when they decide to manage their portfolios independently. For starters, it takes a lot of research to figure out securities that match your risk propensity. Even when you have the list ready, the learning curve is often steep, and you often end up entering and exiting at the wrong time. It takes years of experience and understanding for one to master the art of entry and exit at the right time.
Given that you are inexperienced, you stand to suffer the most in a bear market. Most individuals do not invest after factoring in the potential downside in mind and lose a lot of money when the bears take control. Investing takes a lot of time. So you will have to dedicate a part of your days to understanding the market and choosing your entry and exit positions. In addition, the overall world of DIY investing is complex and encompasses multiple avenues which require in-depth understanding as to how it functions in unison.
While DIY investors can make a lot of money by managing their portfolios, it won't come easy. Professional managers have access to a wide range of pro-level tools, making investing a less strenuous task for them. In addition, they have years of experience, which a DIY investor cannot boast, at least initially. So you will have to be patient and continually upskill to ensure you have the upper hand.
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