DIY investing: Be wary of its touted benefits and hidden costs
Endowus Insights

DIY investing: Be wary of its touted benefits and hidden costs

Updated
2
Sep 2022
published
4
Sep 2020
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People fixing a wall

The do-it-yourself or DIY trend is not new — social media and the internet have simply accelerated its growth. Be it newly-weds putting together an Ikea Billy bookcase to furnish their new BTO flat, or an investor constructing his own investment portfolio, people are embracing self-help and the sense of satisfaction that comes with it.

The proliferation of low-cost brokerages and near-unbridled access to information has encouraged more people to want to manage their own investments by themselves.

For the uninitiated, there may be benefits to taking investing into your own hands. But in some cases, investors could realise that with the stress and other downsides to DIY investing, it may not be as simple, straightforward, and satisfying as assembling a bookshelf.

What is "do it yourself" investing?

DIY investing is an investing method in which an individual decides to construct and manage their own investment portfolio — instead of engaging an agent, such as a remisier, financial advisor, or relationship manager to do so.

Some DIY investors choose to directly invest in individual securities, while others invest in unit trusts and exchange-traded funds (ETFs) to get broader investment exposure for a small management fee.

Pros of DIY investing

1. Costs are presumably lower

DIY investing in Singapore can be cheaper than other methods, provided that you know how to:

  1. Source for the right investment products, and
  2. Have the products cheaply "delivered" to you.

This is similar to how newlyweds scour Taobao to buy furniture: you go straight to the source, get the cheapest product, and find the cheapest delivery method. If you do not need the input of an interior designer and can take things into your own hands, you have the lowest-cost product.

For DIY investing, you can research online and buy the cheapest investment products, directly from the fund managers where possible. You may look for the most cost-efficient brokerage or unit-trust platform, and invest through it.

That way, you avoid expensive sales charges, as you pay only one-off brokerage charges. You also avoid buying the expensive retail share class of unit trusts that have built-in middleman costs, or trailer fees.

2. You have full control of the investments that you make

Without anyone advising you on your portfolio allocation decision, you have the full discretion on how you want to invest.

That means you are free to invest:

  1. Based on your personal values, such as impact investing or shariah-compliant investing;
  2. To aim for the highest returns, through frontier technology or making tactical asset allocations;
  3. To minimise risk by adopting investment styles such as all-weather or permanent portfolios;
  4. To receive passive income through dividend investing or passive investing;
  5. In a passive, diversified manner, like Boglehead investing into index funds.

Your investment decisions could be a combination of the above, or based on more speculative bets.

When you create your own portfolio, you know exactly what goes into it. The process of portfolio construction forces you to consider a variety of different options.

This deliberation and down-selection process helps build conviction in remaining invested, as opposed to engaging a financial adviser that you may not fully trust.

Learn how to build the classic 60/40 portfolio, which often hits the sweet spot in balancing diversification, growth, and risk mitigation for long-term investors. To use both the strategic and tactical methods of asset allocation in your portfolio, consider the core-satellite strategy.

Cons of DIY Investing

1. Time and resources spent to manage your investments

The freedom of DIY investing comes with great responsibility. There are no errant financial advisers (or unreliable housing contractors, in the case of renovating your home) for you to blame when things go wrong.

From the weight of your financial planning decisions to the execution of your investment plans, all the responsibility lies squarely on your shoulders.

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You can buy an e-book that covers the basics of DIY investing in Singapore, or Google for specific answers to your questions. But you cannot be certain that these self-help resources did not miss anything — such as the most updated information or any conflict of interest — in their recommendations.

For many people, investing is actually a full-time job on its own, instead of a hobby or "side hustle". DIY investors need to devote substantial time and resources, which can sometimes be overwhelming if you already have a day job and other commitments.

The financial world centres around a dynamic marketplace. New ETFs, unit trusts and investment platforms are launched at at an accelerating pace, often with lower costs and better product features. It is difficult to keep abreast with the latest developments by yourself if you want to get the best products.

The management of it can be difficult for some people — you have to set up a brokerage account, understand the industry jargon when you use and operate the platforms, and manually key in trades on a monthly basis.

DIY investing is nothing like directing the renovation of your new home — there is neither a clear outcome nor a timeline. The time and effort spent managing your investments can be tremendous, depending on how detailed-oriented you want to be.

2. Few suitable DIY investment products

While you can buy and import home furnishing and appliances by yourself, there is a lack of appropriate DIY products for Singaporeans.

Ideally, with a DIY passive portfolio, you should be:

  1. Investing at a risk-appropriate level;
  2. Meaningfully diversified across asset classes, geographies, and sectors;
  3. Minimising costs at all levels by being tax-efficient and FX-efficient; and
  4. Finding it easy to manage on a day-to-day basis.

For Singaporean investors, while there is little contention on how to invest in an appropriate DIY equity portfolio (such as LSE-listed ETFs), the choices for bonds and alternative investments become less obvious.

Should we buy USD bond ETFs or SGX-listed bond ETFs like A35/MBH, or should we copy Jack Bogle's traditional three-fund portfolio as Singaporeans?

Unfortunately, there are few bonds and alternative investment solutions available to retail investors. SGD hedged bond unit trusts are expensive due to high fund management fees. Bond ETFs on the SGX are not meaningfully diversified.

Being a Singaporean DIY investor means that you would have to make compromises in your investment choices.

3. Letting your emotions take hold

When we manage our own investments, it is easy to let our impulses and fears take control.

For example, we may get excited with hot news from Reddit and choose to punt a hot stock. Or we may speculate beyond our own financial and emotional comfort level and make decisions that we will regret.

We may also make mistakes that affect our confidence and discipline in investing consistently in the future.

Read more: Rational investment strategies to win in a tumultuous market

4. Rebalancing your portfolio exposure

While you can invest into a portfolio of stocks and funds through a brokerage, maintaining the portfolio based on your preferred allocation is difficult.

The stock market is volatile and share prices can fluctuate wildly, throwing your portfolio allocation percentages off.

Managing your investments requires you to constantly monitor the allocation, and to make the necessary buy/sell trades at the right amount and time to maintain your portfolio. This can be a time-consuming and expensive process.

How it differs from investing with robo-advisors

While some people may think that using a digital wealth platform or robo-advisor such as Endowus is a form of DIY investing, it definitely is not.

In fact, you will be offered an investment solution based on your risk profile and goals, with curated best-in-class funds built into an optimal portfolio that's most suitable for you, a Singapore-based investor, in terms of costs, taxes, and currency exposure.

The level of customisation required is low, your portfolio is constantly monitored, and you can easily speak with an MAS-licensed financial adviser if you wish.

A DIY solution also gives you some autonomy in terms of your investment exposure. For example, if you work in a US tech company, you may want to hold fewer investments in the US markets.

Perhaps a solution where users can adjust their investment portfolios based on down-selected funds, with a platform automating the investing and monitoring is the perfect solution.

That being said, not all robo-advisors are created the same. Learn the different investment approaches, so you can decide which robo-advisor or wealth platform is best suited for your needs.

To get started with Endowus, find out more here.

Next on the Endowus Fin.Lit Academy

Read the next article in the curriculum: Investing for passive income

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Investment involves risk. The value of investments and the income from them can go down as well as up, and you may not get the full amount you invested. Past performance is not an indicator nor a guarantee of future performance. Rates of exchange may cause the value of investments to go up or down. Individual stock performance does not represent the return of a fund. 

Any forward-looking statements, prediction, projection or forecast on the economy, stock market, bond market or economic trends of the markets contained in this material are subject to market influences and contingent upon matters outside the control of Endow.us Pte. Ltd (“Endowus”) and therefore may not be realised in the future. Further, any opinion or estimate is made on a general basis and subject to change without notice. In presenting the information above, none of Endowus Pte. Ltd., its affiliates, directors, employees, representatives or agents have given any consideration to, nor have made any investigation of the objective, financial situation or particular need of any user, reader, any specific person or group of persons. Therefore, no representation is made as to the completeness and adequacy of the information to make an informed decision. You should carefully consider (i) whether any investment views and products/ services are appropriate in view of your investment experience, objectives, financial resources and relevant circumstances. You may also wish to seek financial advice through a financial advisor or the Endowus platform and independent legal, accounting, regulatory or tax advice, as appropriate.

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