Is DIY investing for you?

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.

There are certainly potential benefits to taking investing into your own hands. But in some cases, depending on your personal circumstances and goals, it may not be as simple, straightforward, and satisfying as assembling a bookshelf.

Read on for an overview of the pros and cons of DIY investing, to understand whether it is suitable for you.

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 in Singapore choose to directly invest in individual securities, such as SGX-listed stocks, while others prefer to invest in funds — be it unit trusts or exchange-traded funds (ETFs) — to get broader investment exposure for a small management fee.

For example, on the Endowus Fund Smart platform, investors can pick and choose their favourite funds from top-tier fund managers to customise their ideal investment portfolio in minutes, and at a low, transparent cost.

Pros of DIY investing

1. Investment costs can be 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, also known as trailer fees.

With our Fund Smart platform, it is more transparent and, in most cases, much more affordable, to invest and grow your wealth than it would be to replicate your portfolio at a private bank or other online platforms. Endowus gives you 100% Cashback on the trailer fees. You also get unrivalled access to the cheaper, institutional share-class of funds, which are not usually available to retail investors at other distributors. There are no sales charges, and no transaction fees.

The Endowus Fee for Single Fund Goals via Fund Smart (Cash, CPF, and SRS) is 0.3% p.a., reinforcing our commitment to reduce the cost of investing. This pricing means that more than 95% of the funds are now cheaper on Endowus than on any other fund platform, bank, private bank, financial advisor, or broker in Singapore.

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

Without anyone advising you on your portfolio allocation decision, you have 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. You can decide how much money to allocate to each sector, geography, and asset class, such as stocks, bonds, property, or alternative investments. It is also up to you to manage or rebalance these allocations at any time you wish.

The process of portfolio construction forces you to consider a variety of different options. This deliberation and down-selection process can also help to build your conviction in remaining invested.

At Endowus, we believe that our advised portfolios should form the core of your investment portfolio for long-term wealth accumulation, and Fund Smart or other DIY investing methods can be a way to complement your existing core investments.

Fund Smart is a curated list of best-in-class funds across asset classes, geographies, and sectors. You can choose from a variety of investment ideas, be it searching from the most popular funds that our clients are invested in, or the top equity or fixed income funds based on inflows. You may also select from popular low-risk cash funds with higher yields, earn payouts effortlessly from passive income funds, or track major global indices at a low cost with passive index funds.

‍Learn how to build a balanced 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

That being said, the freedom of DIY investing comes with great responsibility. There are no errant financial advisors (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.

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 absolutely certain that these self-help resources did not miss anything — such as the most updated information or any conflict of interest — in their recommendations.

Bear in mind that investing is actually a full-time job for many individuals, and not just a hobby or "side hustle". Singapore investors interested in managing their own investment portfolios may need to devote substantial time and resources to this endeavour, which might become overwhelming depending on your existing commitments (such as a day job) and life or financial circumstances.

The financial markets are dynamic and volatile. New ETFs, unit trusts, and investment platforms are launched at at an accelerating pace, often with lower costs and better product features. It can sometimes be difficult to keep abreast of all the latest developments by yourself if you want to get the best products.

Actively managing your investments can also be difficult for some individuals. For example, if you're buying and selling single stocks, you may have to set up a brokerage account, understand the industry jargon when you use such platforms, and manually key in trades on a monthly basis. If you have investments across multiple platforms and banks, it can also be challenging to keep track of their performance and fees regularly.

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 significant, depending on how detailed-oriented you want to be.

2. Letting your emotions take hold

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

For example, you may get excited by hot news from Reddit and be tempted to punt a hot stock. Or you may speculate beyond your financial and emotional comfort levels and make decisions that you might regret later.

In recent years, we have all seen the ups and downs in the financial markets from meme stocks and the cryptocurrency bubble. The markets will continue to be driven by fear, anxiety, panic, denial, hope, optimism, thrill, euphoria, arrogance and more.

Furthermore, if you make any mistakes while DIY investing, that could dent your confidence and affect your discipline in investing consistently in the future.

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

3. Rebalancing your portfolio exposure

After you've built your own portfolio by buying single stocks and funds, depending on your investment strategy, you might find it difficult to maintain the portfolio based on your preferred allocation — such as having 60% stocks and 40% bonds.

For instance, if you're mostly invested in single stocks, you'll see that the stock market tends to be volatile and share prices can fluctuate wildly. That can easily throw the portfolio allocation percentages off.

If you want to maintain the asset allocation in your own DIY portfolio, you will have to monitor the numbers frequently and also make the necessary buy/sell trades at the right amount and time. This can turn out to be a time-consuming and expensive process, especially if the platform you're using is charging you high or hidden fees for each transaction. Fees eat into your investment returns — make sure you understand all the fees involved when investing. To learn about Endowus' transparent pricing, click here.

In contrast, when you invest in an advised portfolio with Endowus, we offer an automatic rebalancing feature that helps our clients stay aligned with their target asset allocation. Research has shown that maintaining a portfolio’s target asset allocation contributes to returns in the long-term. Thus, the auto-rebalancing feature is one of our value-added services for clients. You can also choose to opt out of this auto-rebalancing feature.

What if DIY investing is not for me?

Some investors in Singapore may think that using a robo-advisor or digital wealth platform such as Endowus is a form of DIY investing. While fund investing is indeed possible on our Fund Smart platform, Endowus also offers advised portfolios for investors who prefer to leave the portfolio construction and management to the experts.

Endowus curates best-in-class funds as building blocks for all our advised portfolios. These unit trusts, also known as mutual funds, are selected through a strict, institutional-grade screening process called SMART+, by our Investment Office team of 10 investment professionals. These unit trusts have been identified as the most suitable for Singapore investors and allow you to be exposed to the markets in the most cost-efficient way — even relative to exchange-traded funds (ETFs) — as they are SGD-denominated.

With Endowus, you will be recommended an optimal portfolio based on your risk profile and goals. The level of customisation required is low, your portfolio and the underlying funds are constantly monitored, and you can easily speak with an MAS-licensed client expert if you wish. We are a digital platform, but one with a human touch.

The Investment Office is constantly on the hunt for lower-cost alternatives for our advised portfolios. When such funds are screened and found, we initiate a recommended portfolio change so investors can enjoy lower costs, thereby improving their returns. For example, we recently introduced low-cost passive index funds from BlackRock iShares and Amundi to our Flagship Portfolios.

You can also invest with peace of mind by automating your investments on a monthly, recurring basis on Endowus. The routine of automation or dollar-cost averaging (DCA) can make it less likely for you to make emotional, impulsive or speculative decisions based on personal opinions or market conditions.

Set a core-satellite investing strategy

Want the best of both worlds? Consider building your portfolio with a core-satellite investment strategy, which enables you to DIY invest for the satellite allocation while investing in advised portfolios for your core holdings.

In a core-satellite strategy, there are two components. The core assets make up the largest portion of your portfolio. They are usually broadly diversified across sectors, geographies, and asset classes, and can be managed passively. The core component may thus include a balanced 60/40 mix of stocks and government bonds. It could also include a large-cap stock index fund that provides broad market exposure, for instance.

For many of our clients, the Endowus Flagship Portfolio makes up the core of their investment portfolios.

After you have constructed the core of your portfolio, that may then be complemented by smaller holdings, or the satellite portion. These satellite investments can help with further diversification, and give you a more concentrated or narrower exposure, for example in a single country, a specific sector, or a theme such as clean energy.

DIY investing can come in at this stage if you wish to express a tactical view and add on smaller, satellite exposures to supplement your core holdings. For example, you could buy shares in a technology company that you have a strong conviction in. Or you may browse through investment funds to select your favourite funds across different investment styles, geographies, risk levels, currencies, and equity or fixed income sectors.

The core component typically uses a strategic allocation approach to churn out consistent returns at low costs over the long run, while the satellite holdings give investors the flexibility to supplement their portfolio with tactical short-term opportunities to enhance returns. The core-satellite concept is therefore a prudent way to manage your total portfolio for long-term results.

To get started with Endowus, click 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.