Confidence is a wonderful thing. It can help us exceed what we previously thought were our limits. It can also be dangerous if it’s not tempered and backed up by doing the hard work to earn that confidence. Give me a home brew kit, things will go well. Put an Ikea flat-pack box in front of me, not so much.
The need to know what your skills are and what work you need to put into them is particularly true when it comes to investing. Cutting out the middle man has the natural attraction of cutting out costs but there’s also the weight of expertise to consider. If you want to go DIY on investing, you need to be smart about what you are doing.
It’s an area in which interest is growing substantially. Research by the Banking and Payments Federation of Ireland shows transaction volume in DIY investing is expected to exceed €13.5 billion in 2025.
There are obvious attractions, such as avoiding fees that would come with a traditional adviser. There’s also the matter of control. Digital platforms such as Revolut or Degiro have made it easy for anyone to open accounts and start trading shares, crypto or exchange traded funds (ETFs).
RM Block
Younger investors have grown up with apps being the norm for how they live, so using them for investment is a natural route to take. However, that familiarity can also lead to investors not getting a full picture of what to invest in and where to place their money.
Leonardo Mazza of Cantor Fitzgerald highlighted this in a recent article on the growth in DIY investing, in which he wrote: “Irish DIY investors tend to concentrate their holdings in a narrow set of securities, which may not provide them with sufficient diversification.”
Whichever option you consider when DIY investing, the services available tend to provide clarity on fees and how you make investments. Indeed, one of Degiro’s main selling points is how easy it is to follow the costs involved.
There is always a but, and in this case, it includes the fees to the service provider. The money you invest is subject to tax so you essentially become your own chief financial officer, compliance officer and record keeper when investing and have to keep track of what tax obligations you must meet, including filing.
That’s why you’ve got to consider the style of DIY investing you are going to undertake. A passive investor takes on the lowest workload and, most likely, lowest risk as well. You can set up a standing order to invest in an ETF and let the fund do the heavy lifting.
A stock picker is a quite common type as this is an investor who might be spurred into DIY investing based purely on a single stock. The amount of effort involved can vary but so can the risk and reward.
A thematic investor is what it sounds like. There’s an area of the market they want to invest in – that could be green energy, artificial intelligence or the latest theme in society that has caught their imagination. The obvious positive here is the investor is likely to have a strong interest in what they are investing in; the drawback is they might also be too emotionally invested in the concept.
Lastly there are the gamblers, those who jump on meme stocks and follow the latest token. This can be fine if it’s just a casual investment here and there, but it comes with high risk for those who follow this approach to excess.
The common risk with all of these, to varying degrees, is overconfidence. The belief that by taking control, you can beat the market is easy to have. In truth, even those who have decades of experience as professional investment managers regularly underperform against index funds.
The risk of concentrating investment in too small a basket of investments that Mazza pointed out is also substantial. Diversification reduces risk; it’s dull but that’s rather the point.
A DIY investor is also likely to be more prone to emotional decision making, with impulses such as the fear of missing out (Fomo) or taking a loss-aversive approach by selling too early being more capable of taking hold. Left unchecked, your own instincts and habits are the biggest risk to your portfolio.
If you want to engage in DIY trading then you have to accept that while access to trading is easy, succeeding involves work. Start slowly and work out what you can and can’t commit in terms of time and focus on it.
Most importantly, diversify from the outset. It’s not even difficult as a single ETF can have thousands of companies under its roof. That is a low-effort form of protecting you from excessive risk.
Treat it as a long-term project. Work out the approach to investing you want to take, map it out and avoid the urge to tinker with it regularly. The more boring you make this process, the more likely you are to succeed.
Also be sure to read up on investing and matters such as compliance and tax before you begin your DIY journey. That way you know what commitments, beyond the financial, you will need to make in order to succeed.
Finally, consider a hybrid approach. Rather than going all-out on DIY, consider working with professionals for the bulk of your investments and keeping a separate pot for some DIY dabbling on the side.
