By Brad Thomas, Editor, Intelligent Income Daily
Here’s an interesting statistic: Between June and August 2020, internet searches for home improvement projects increased by 50% compared to the prior year.
That’s according to Porch.com, a company that hosts a platform for homeowners to find contractors in their area.
That same company reported that three out of four homeowners had completed a major home improvement project as of September 2020.
This boom in do-it-yourself (DIY) projects was one of the reasons we recommended Lowe’s (LOW) to our Intelligent Income Investor subscribers in March of that year. And I’m glad we did.
The stock is up 225% since.
But while most Americans are eager for DIY home improvement projects, many more are hesitant to be DIY investors.
This is one of the questions I receive from readers from time to time. Is it worth researching and choosing your own investments? Or is it better to just let the “pros” handle it?
Obviously, I don’t know your personal situation. And as a publisher of research, I can’t offer personalized advice.
But try this thought on for size…
DIY vs. LODI
You – yes, you reading this right now – can be a do-it-yourself investor: a free investing agent unshackled from a broker. And I mean a full-service broker, the kind that picks investments on behalf of their clients.
It’s not easy. But it’s also not as difficult as you think. And the benefits can be more than worth it under the right circumstances.
I’m aware of the reasons to remain in the LODI (let others do it) camp. They include:
- You think you don’t have the time.
- You think you don’t have the expertise.
- You simply don’t have the interest.
If you identify with that third reason, I won’t argue with you. In fact, I won’t argue with you on any of them.
I’m not in your exact shoes, and I don’t know your personal details. You might have the best broker or financial advisor out there who has a great grasp of the markets… respects your wants and needs… and achieves market-beating gains for you every year.
In which case, you might be wise to keep him or her in your pocket.
I also understand that you really might not have the time and/or expertise necessary. My mom certainly doesn’t.
As a retired realtor, she can size up a house and sell it like a total pro. But the thought of handling her own investments is just too stressful for her. So, she pays someone else to do it.
Knowing Mom, I’m in agreement with her. And even if I wasn’t, it’s her choice. Not mine.
With that said, I do think too many people dismiss DIY investing due to faulty data. They could actually benefit – perhaps intensely! – by ditching their big brokers once and for all.
Brokerage Fees Build Up
Everyone needs to get paid for an honest day’s work. I’m all about proper compensation for hard work, education, ingenuity, and similar factors.
Full-service brokers, for instance, not only buy and sell stocks for you. They also offer research and advice, retirement planning, and similar noteworthy services – all of which can be very useful.
However, I’m also all about consumers seeking out the best deals possible, in which case, investment brokers aren’t always ideal.
Consider trade commissions, or stock trading fees, which they apply to your bill whenever you want to buy or sell a stock. Similar charges are enacted for mutual fund transactions, and sometimes on options and ETFs as well.
This has become less of an issue in recent years with most brokers now offering fee-free trading. But for some, it could still be something to consider.
If you have an actual financial advisor onboard, you’ll also need to include management, or advisory, fees. And if that person is managing your 401(k), there can be more charges still.
All told, a full-service broker’s standard commission will cost you 1%-2% of your managed assets. So, if you have a $5,000 starter portfolio, you’re out $50-$100 per year.
If you have a $70,000 portfolio, you’re out $700-$1,400.
And if you have a $200,000 portfolio, you’re out $2,000-$4,000.
That might not seem like a lot compared to what you’re putting in or making out. But keep in mind these figures add up.
Moreover, all that capital could have been put toward making more investments that also add up. The amount you’re able to put in every year directly influences the amount you’re able to allocate the next year…
And the next year…
And the next year.
Speaking of money, I need to point us back to those commission fees: the ones where brokers get paid every time you buy or sell an asset
Now, many are completely aboveboard in this. But as with any other line of work, there are those who take advantage.
Blatantly unethical brokers will try to get you to bounce in and out of trades several times a year just to increase the fess they can charge. However, even those with good intentions can be influenced by that same mindset without even realizing it. And there are still others who genuinely think they’re serving you well this way.
No matter their motivation, you’re still losing out. Twice over, in fact.
The Benefits of DIY
There are people in this world who will spend weeks researching a car before they buy it. And when they do finally buy, they know every inch of that vehicle.
But ask that same person what holdings they have in their portfolio, and they can’t tell you. It happens more than you might think…
I always found that a little odd.
You might drive a car for several years. But for many, their investment portfolios are the cornerstone of their retirement plans. And they’re not the least bit curious what they hold?
If nothing else, I always encourage people to be aware of what assets they hold and why.
I know that selecting the right stocks can seem like rocket science. And some people certainly seem bent on making it that complicated.
But if your goal is simply to make steady portfolio gains through safe, diversified, dividend-paying assets… you don’t have to get your masters in asset management or spend months pouring over investment manuals and company publications.
It does take more time than paying someone else to do it for you. However, you might be surprised at how little.
For instance, I don’t mess around with my money. While I put a tiny fraction of my investable equity into speculative opportunities, the vast majority goes toward companies with already established histories of excellence.
Remember how I wrote in Thursday’s issue that I look for businesses:
“… with wise management members who know how to put [their] profits to good use and manage [their] debt appropriately. That’s how you get a healthy, growing [company] and therefore a healthy, growing dividend.”
This means going over each company’s purpose, products, client base, and competitors – which can take maybe an hour… evaluating its balance sheet – which can admittedly take two or three… and reviewing its dividend history – which can take mere minutes.
And once I know a business, it becomes that much easier to evaluate it, staying on top of its news releases and reading reviews of it as they come.
Really, the biggest amount of time I spend is evaluating a potential asset’s value proposition. I want to know where it’s traded at in the past, what its price-to-earnings or equivalent ratio is, what its future prospects are that could increase (or decrease) its valuation going forward, and so on.
Again, this does take some understanding and some time, but you can learn that through published resources, including from our services at Wide Moat Research.
When you do, you might find that you’re a lot better equipped – and even excited – to give do-it-yourself investing a try.
Again, I’m not telling anybody to fire their financial advisor. If you’re happy, then stay happy.
But don’t disregard the benefits of a little DIY work. The knowledge, experience, and potentially higher returns from paying no fees can make it well worth it.
Regards,
Brad Thomas
Editor, Intelligent Income Daily