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The Risks of Do-It-Yourself Investing

risk vs reward

Do-It-Yourself (DIY) investing, also known as self-managed or self-directed investing, is when you create and manage your own investment portfolio. DIY investors often use digital platforms, online applications, and discount brokerages to build and manage their portfolios rather than employing the help of a qualified professional for advice or portfolio supervision.

DIY investing may offer you more personal control and lower fees, but making decisions based on incomplete information and without the expertise that comes from training and experience can expose you to a multitude of  risks.

Do-It-Yourself Investing Risks

Lack of Investment Knowledge

Most DIY investors do not fully understand the fundamentals of investing, such as diversification of assets, the principles of portfolio rebalancing, the tax implications of their investments and risk/return relationships. They also do not have access to all the research and company information that an investment professional does. Investment mistakes can be expensive and significantly hinder your wealth-building progress.

Lack of Time

Investing wisely takes time. You need to research potential investments and then select the ones that best align with your investment goals. DIY investors typically cannot dedicate enough time to adequately make informed investment decisions.

Not Understanding Your Own Investment Profile

Investing is personal and your investment decisions should be driven by your own financial circumstances and goals, as well as your personal risk tolerance. However, establishing your own unique investment profile is almost impossible without an outside professional perspective.

Keeping Emotion Out of Your Investment Decisions

Emotions can cause you to buy into surging markets and sell during market declines thereby exacerbating any investment losses. Emotions may cause you to hold on to your winners too long and/or not be patient enough with lagging investments. Without external guidance, emotions can quickly veer your portfolio away from your long-term objectives.

Being Influenced by Market Noise

When you rely on public media or random internet sources for your investment research it is very difficult to differentiate media hype from accurate information. It is almost impossible to screen one from the other without professional help. Investment decisions based on hype almost always lead to losses.

Falling Victim to Investment Fraud

Fraudsters create fake websites and advertise recommendations and/or private messages to convince you to invest through them. The opportunities are most often not real, or the fees are far beyond what you would pay for a reputable full-service broker. DIY investors often lack the knowledge and experience to identify these investment frauds.

Partner with a Qualified Financial Professional

Over time, research has shown that investors who seek the advice of a financial professional experience better results than DIY investors.

A financial professional can act as a mentor, helping you to remain objective and keep your long-term investment plans on course without short-term knee-jerk emotional reactions. They can make trades based on company analysis and information that may not be available to you.

Forming a long-term relationship with a trusted financial professional such a Bloom Investment Counsel, Inc. can give you peace of mind that a qualified professional is overseeing many of your financial concerns including your investment portfolio.

With Bloom Investment Counsel, Inc. as your investment manager, you will not need to check markets daily, make trades and monitor their completion, and worry about your short-term wealth, enabling you to spend more time on your own career and family.

This content is provided for general informational purposes only and does not constitute financial, investment, tax, legal or accounting advice nor does it constitute an offer or solicitation to buy or sell any securities referred to. Individual circumstances and current events are critical to sound investment planning; anyone wishing to act on this content should consult with his or her financial partner or advisor.

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