What Every Do-it-Yourself Investor Must Know

"We must all suffer one of two things: the pain of discipline or the pain of regret." – Jim Rohn, author & entrepreneur.

The rise of do-it-yourself (DIY) has run parallel to the explosion of the digital world. We can DIY a leaky toilet, furniture assembly, or pretty much anything else that requires instruction with a quick online search.

Putting together an IKEA coffee table is black and white. A logical, step by step process is the best way to solve the problem.

Investing is not logical, nor is it black and white. It's full of nuance and constant change.

With a few clicks, a DIY investor can move around money without getting out of bed. Throw in commission free trades, cheap ETFs, and easy to use online brokerage platforms... and the allure of DIY investing is hard to ignore.

Unfortunately, the 24/7 access leaves nothing in-between you and your money. Here's what every DIY investor must know before taking the plunge.

I define a do-it-yourself investor as anyone who unilaterally makes investment decisions on a sizable chunk of their wealth. A person managing their 401k, IRAs, and taxable money, without the help of a professional is a DIY investor in its purest form. Someone using a professional investor for 80% of their investable assets, while self-directing the other 20% is not a DIY investor.

Know thy Enemy

The biggest risk to your investment portfolio isn't who wins the White House, foreign policy, tariffs, interest rates, the Fed, or any other pessimistic scenario you can dream up.

It's yourself.

Create a Personal Investment Policy Statement

This is a fancy way of stating your core investment beliefs. Investing full of nuance. However, there are a few truths that should guide your investment approach.

Here's what mine might look like:

If I decide to buy an individual stock, my minimum hold period will be five years regardless of what happens.

ETFs will make up the majority of my portfolio with individual stocks sprinkled in.

No individual stock position can exceed 15% of my investable assets.

I will document my thought process when making buy and sell decisions. I will periodically review my reasoning.

I will obsess about the things I can control: taxes, my behavior, improving my investment process.

Your list will look different and that's ok. The goal is to create a framework to help you stay on track.

Get Comfortable with Negative Outcomes

Not every stock is going up. Not every asset class is going to live in the sun. Things go in and out of favor. Resist the urge to assume something is broken because it's underperforming. The more broad the asset class, the more true this rings.

Negative markets, investment losses, and extreme events are part of investing. It's the cost of admission. There's never been an investor that enjoys endless gains without experiencing heavy losses. Those that try (market timers) end up making catastrophic errors and a boatload of regret.

Be Honest with Yourself

Investing is easy when the market is going up 12% per year. It's much tougher when we get random events that no one saw coming (9/11, COVID, 2020). The test of whether or not you're equipped to DIY is how you react during periods of market and emotional stress.

Know your weaknesses, biases, and blind spots. Understand how your personal experiences shape your world outlook. Intelligence in one area doesn’t translate to intelligence in every area. Get help if you need it, there's too much at stake.

Define What You Are Trying to Do

This can be as simple or complex as you would like. For example, all of my personal investment decisions and attitude towards money revolve around one simple idea: My definition of money success is being able to answer to no one (outside of my family).

Therefore, I'm focused on maximizing my savings rate. I forgo driving a fancy car, a new house, extravagant vacations because it leaves me further away from my definition of success. When I clearly frame my definition of success, it's much easier to stick to my money/investment plan.

Your plan might be to spend x amount in retirement each year without invading your investment principal. It might be to donate $1 million to your favorite charity or send your grandkids to college.

When you clearly define what you are trying to accomplish, you can ignore the talking heads on TV, financial news, social pressure to keep up with the Joneses, and other nonsensical advice.

Learn From Mistakes

I'm not talking about meticulously tracking performance and beating yourself up if you're not up to par. Rather, did you make a poor emotional decision outside of your framework? Did you sell prior to the election or panic during the COVID sell-off?

An investor will keep repeating the same destructive behavior if they don’t recognize the problem. I'm amazed at the number of people who make hugely impactful decisions outside of their scope of expertise and don't acknowledge the consequences of their actions. These decisions aren’t free, there is a very real cost. Self awareness and putting your ego to the side is a huge part of being a successful investor.

It's easier than ever to DIY. This works well for things that are logical and black & white. Investing is hard and full of nuance. If you can clearly define what you're trying to do, create a framework for making decisions, and recognize your blind spots, you could be equipped to make it as a DIY investor.

Remember, the most dangerous thing to a DIY investor is the person in the mirror.