Do-it-yourself investing (DIY Investing) is an investment approach whereby investors manage all or part of their own portfolio rather than hiring a third party such as a financial adviser or investment manager. DIY investing can be time consuming and complex and therefore may not suit everyone, but for those who do decide they want to take more direct control of their investments we offer our top tips*.
As with all investments strategies it is important to determine at the outset what the objectives are, what your risk appetite is, the timeframe over which you want to invest and to consider other factors such as tax and other personal circumstances.
Still with us...
Our Five Rs for DIY Investing:
Risk: This is a wide concept but could be as simple as asking questions such as:
- Do I understand what the company I have bought shares in does?
- Where do I rank in the order of pay-outs if my investment goes wrong?
- Is my investment likely to be impacted by currency fluctuations?
The answers to such questions are not usually definitve but can help identify and frame the risks you are willing to take on.
Return: What is the expected rate of return on the investment?
- Is the return fixed, as with direct lending, peer-2-peer lending or a bond, or variable such as a listed equity? Is the return contractual, or can it be changed?
- Is the return likely to come from a capital gain e.g. precious metals or artwork, from an income stream e.g. e.g. buy-to-property or both?
The expected rate of return should provide an indication of the risks involved, for example shares with very high dividend yields when compared with their peers often carry higher risks to capital.
Review: Personal circumstances can change as can the nature of the investments themselves
- You may have made an investment choice based on any number of criteria but have those circumstances changed? Is the company still growing, has the fund manager changed, is the area you bought a flat in still a property hot-spot?
- Have your own circumstances changed? A change of job, an addition to a growing family, or a large purchase such a property may impact the amount you can afford to invest or the type of investments you choose.
An annual review of your circumstances should help to ensure your investments remain appropriate.
Rebalance: Has the performance of your investments altered their balance and diversity?
- Even in the event of no major change in circumstances it is important to rebalance a portfolio on a regular basis. For example, you may have decided on a certain broad allocation from the start, as represented in the first pie chart.
- At the end of a review period let’s suppose that your equities have increased in value by 20% but bonds have fallen by 5% and property by 5%. Cash and Direct Lending have not changed.
According to your allocation you would now be over exposed to Equities and under exposed to all other asset classes and it may be time to ‘take some profit’ and reallocate proceeds to your other asset classes. The impact is reflected in the pie charts below.
Rebalancing is one of the key aspects of DIY investing but is often ignored.
Relax: Investment performance will fluctuate over time.
The truism that no one can predict the future applies to investments as much as it does to any other aspect of life but by following a few simple rules you should be in a better position to achieve your investing objectives.
*Warning: nothing in this article should be construed as advice. Your capital is at risk.
Getting Started is easy
Over the last few years we’ve seen investment landscape shift for DIY investors as advances in financial technology have enabled individual investors to access alternative investment opportunities such as Direct Lending and Peer-to-Peer (P2P) lending. These ‘alternative’ investments have become mainstream asset classes in their own right and can be a valuable addition to a well-balanced and diverse investment portfolio.
Getting started is easy. In just a few simple steps you can create an account and start targeting gross returns of up to 8.0% p.a.1 and with no tie-in3 there is no reason to delay.