DIY Investors: Tips for Investing and Mistakes to Avoid

Do It Yourself (DIY) investors are self-sabotaging their portfolios, without even realizing it. 

However, a report from Morningstar makes it clear that our constant need to tinker with our portfolios is costing us big time money.

The average investor trailed the return of the funds they were invested in by nearly 1% per year during that time.

Why DIY investors lag fund performance

All humans suffer from a number of cognitive biases that lead to irrational investment decisions.

There are three psychological traits in particular that are hurting DIY investors.

Investors were buying high and selling low. You don’t need to be Warren Buffet to realize that isn’t a recipe for investing success.

Fear and greed are two halves of the same coin

DIY investors also suffer from another bias; overconfidence

This overconfidence can lead to market timing decisions that seem like good ideas at the time, but most often lead to underperformance.

1. Stop trying to outperform the market

3 Tips to help DIY investors get out of their own way

Invest in a passively managed fund that tracks the entire stock market. Then treat it like a passive fund by simply buying and holding.

2. Don’t check your account balances

Adopting a passive buy and hold strategy helps us deal with overconfidence bias. The only thing that can derail this strategy is fear (selling low) and greed (buying high).

3. Don’t take more risk than you need to

One of the most effective ways to manage the fear of large market declines is not to overexpose yourself to the stock market. That means having a balanced portfolio of stocks and bonds.