As I previously mentioned, there are 3 ways to invest:
– Through a brokerage account (DIY Investor)
While we saw what a broker or a financial planner can do for your investment and your personal finance in general, we will look at the different option of a DIY investor and see if it’s the right way for you.
Several people think (and I used to be a part of it) that they can beat the market and that they can do better than most of portfolio managers. So why wasting your money investing into mutual funds when you can open your brokerage account tomorrow and become the next Warren Buffet (the poor man is aging, we need to find someone else to replace him 😉 ). Before we start on this route, I just want to mention that 7 portfolio managers out of 10 do not beat the market over a long period (5 years+). Therefore, if those guys who are their job to analyse the market, meet with CEO’s and have teams of CFA’s analysing all the company in the world cannot beat the market… how are we supposed to do it with our computer and our newspaper?
Nevertheless, if you want to give it a try, there is nothing like losing money to understand the complexity of the stock markets ;-). More seriously, there are people who can make it; especially if you are looking to buy ETF’s or well diversified mutual funds and stick with them.
To be a successful DIY investor, you must know the markets, what is being traded on them (stocks, options, mutual funds, bonds, ETF’s, etc.) and know what you are looking for. There are tons of great tools like stock screens, mutual fund selectors that exist to help you find the right investment that will make you rich.
The good news for DIY investor is that they don’t need to have a lot of money to open a brokerage account. With a small amount of $1,000, you can open your account and start investing. However, I do not suggest to invest 1K in something else than a mutual fund since you won’t be able to buy many stocks with such amount.
If you have a financial background and you like to read financial statements and business news, being a DIY investor can become a great hobby and you may make money out of it. However, keep in mind that portfolio managers are spending 10 times the time and the energy on doing exactly what you are doing. Therefore, finding the right stock at the right price may be difficult…. Very difficult.
On the other side, if you are looking to make a great selection of mutual funds and ETF’s, you may be able to build a good investment portfolio by yourself. The main reason is that most people offering mutual funds (Brokers or Financial Planners) will always have a conflict of interest. While the brokers may be tempted to select a more paying mutual funds, the financial planner will obviously offer the funds manufactured by his employers (he has too as he doesn’t have the right to tell you to buy or sell specific funds/stocks).
If you want to invest by yourself, I suggest you track down your record for several years, therefore, you will be less tempted to remember only the good trades and you will look at your portfolio with a more rational perspective.
– Are interested by what is going on in the economy and in the markets.
– Read a lot of financial and business news, may have to read financial statements and do calculations.
– Have a solid financial background so they understand different investment strategies, investment products and master trading terms.
– Want to be directly implicated in all investment decisions and want to make the necessary research by themselves before making a transaction.
Now that you know how much you can put aside, that you know your investor profile, you investment possibilities and the people that can help you out, you are done… not yet! Next Monday, we will look at the next step: make a financial plan.
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