Novices must beware of pitfalls of ‘DIY investing’

Those aiming to capitalise on the current stock market opportunities without a professional adviser are taking a big risk

Novices must beware of pitfalls of ‘DIY investing’
Equities have recently made a remarkable comeback, and some who are new to trading want to cash in. Photo: AFP

Rattled to the core by the Covid-19 pandemic, stock markets around the world crashed in March. China’s Shanghai Composite Index, Tokyo’s Nikkei 225, Hong Kong’s Hang Seng and Seoul’s Kospi were all hit. The major indices of Europe and Wall Street weren’t spared either.

However, since then global stock markets, including Asia’s, have staged an impressive rebound.

It is this staggering comeback of equities that has caught the eye of many investment novices across Asia, who are aiming to capitalize on the current buying opportunities that exist without a professional adviser.

Of course, it is a sensible and noble aim to seek investment opportunities when they arise. But it should come with a stark warning: DIY (do-it-yourself) investing has many pitfalls.

In my experience, the best, if not only, way to minimize the potentially devastating effects on your and your loved ones’ wealth and lifestyle is to work alongside a financial adviser.

A pro will help you make the best investment decisions in five key ways.

First, helping you to diversify a portfolio adequately: Spreading money around is vital to curb risk. However, it must be used correctly. Diversification will only add real value if the new asset has a different risk profile. 

A long-term multi-asset approach to investing, whereby investors choose a suitable combination of global equities and bonds, financial history shows, offers good returns relative to risk. Investors should try to be as diversified as possible.

Second, investing with a plan: Unless you have a sound plan, you’re gambling, not investing. Anyone who has an investment plan can expect his or her portfolio to outperform those without a plan.

Third, avoiding emotional decisions: It’s far better to stay calm, cool and steady when making financial decisions. Most decisions in life are emotional to some degree, but making excessively emotional decisions can prove deadly when it comes to investments, because they are blighted by prejudices and biases.

Fourth, regularly reviewing your portfolio: Even the best portfolios can go off-target over time. Investments need to be reviewed and potentially rebalanced at least annually, preferably more often, to ensure they still deserve their place in the portfolio and that they are still on track to reach your long-term financial objectives.

Fifth, not focusing excessively on historical returns: Past returns have little bearing on the current environment. The future investment situation is likely to be different from time-aged averages.

Stock markets have been becoming increasingly attractive since the height of the pandemic to a growing number of amateur investors. But while investing in equities remains almost universally regarded as one of the best ways to create wealth, considering the pitfalls of getting it wrong, it could be monumentally risky for you and your family not to seek professional advice.

Nigel Green founded deVere Group in 2002 from a single office in Hong Kong after discovering a niche market for expatriates in the financial services sector. Since then, it has grown to become one of the largest independent financial advisory organizations in the world with offices and clients across the globe.