Are you considering buying stocks, treasury bills, or exchange-traded funds (EFTs)?
Or, perhaps you're thinking about moving from managed investing to self-directed investing?
But, first, you need to have a strategy in place.
The number of do-it-yourself investors is on the rise, according to J.D. Power. This trend is driven by the advances in technology, the COVID-19 pandemic, and other factors such as the rise of online trading platforms. Self-directing investing also gives you more control over your finances and involves lower costs than managed brokerage accounts.
However, this option is not without risks.
J.D. Power also found that novice retail investors are more likely to encounter problems than those with at least three years of experience. Some have a hard time paying their bills and managing debt, while others lack cash flow.
While it's true that self-directed investing can be a great way to create passive income, you must consider the risks involved. Having in-depth knowledge of financial markets is a must, but it takes more than that to build a recession-proof portfolio.
That said, here's what you should know about managing a self-directed brokerage account and how to maximize your returns.
What is Self-Directed Investing?
The investing world is flooded with scams and bad advice if you don’t know where to look.
Many so-called professional advisors without any fiduciary responsibilities will say anything to win your business. And even for those with better intentions, their fees can run into thousands of dollars.
Choosing the right investment manager takes a lot of trial and error — and you could end up losing all your money in the process.
An alternative is to open and manage a self-directed brokerage account so you can have more control over your finances.
With this approach, you'll be fully responsible for asset allocation, transactions, and other investment decisions. You may use automatic trading tools, robo-advisors, or discount brokers, but you're the one who decides where your money goes.
DIY or self-directed investing provides more flexibility and autonomy than managed brokerage accounts. Investors may also have access to a wider range of financial products, from crypto and ETFs to collectible investments like stamps, coins, and fine art. This allows for a more diversified portfolio while mitigating risks.
For example, non-fungible tokens and other alternative assets are rarely traded on public markets. If you open a self-directed brokerage account, you can trade such assets to diversify your portfolio.
Alternative investments have little or no correlation to stocks and bonds — and some can serve as inflation hedges. What's more, they're subject to fewer regulations than traditional investments, giving you more flexibility.
Self-Directed Investing vs. Financial Advisors vs. Robo-Advisors
More than half of all investors currently use self-directed brokerage accounts, according to a Broadridge survey. However, 44% of those who don’t work with advisors at all report that they’re likely to start by 2023.
Most respondents agreed that financial advisors could help them make better decisions and bring them closer to their goals. Nearly one-third of participants reported using both a self-directed brokerage account and financial advisory services, and another 5% used robo-advisors to guide their decisions.
With self-directed investing, you'll conduct transactions via an online broker, or discount broker. The fees are usually lower than what you'd pay for a managed brokerage account, making it easier to get started.
Robinhood, TD Ameritrade, and other discount brokers operate entirely online, but you can also open a self-directed brokerage account at Citibank, J.P. Morgan, or other banks. Financial institutions, such as Fidelity Investments and Vanguard, offer this service, too.
These platforms provide access to a wide range of mutual funds, stocks, ETFs, bonds, and everything in between. There's also the option to open a self-directed IRA (individual retirement account) so you can have more investment options and possibly higher returns.
Alternatively, you could work with a financial advisor or open a managed brokerage account. If you go this route, you'll have your portfolio managed by a professional. As you would expect, the fees are substantial. Most advisors charge about 1% of assets under management (AUM) per year, but the costs can go up for smaller accounts.
A more affordable option is to use robo-advisors like Wealthfront, SoFi, Acorns, or Betterment. These services employ complex algorithms to make investment decisions on your behalf. Some have no account minimums and charge annual management fees of less than 0.5% per amount managed.
Self-directed investment accounts have the lowest fees and give you the most freedom, but the risks are higher. A safer choice is to hire a financial advisor and let them guide your investment strategy. Robo-advisors are somewhere in the middle, allowing investors to automate their trades.
Should You Start Investing on Your Own?
Whether you want to invest in mutual funds, stocks, crypto, or EFTs, you can do it all by yourself. This approach requires financial acumen, discipline, and a strong understanding of investment strategies.
Before getting started, it's essential to have a good grasp of financial markets and know your risk tolerance. Be prepared to spend hours reading market reports, comparing financial assets, and learning the basics of Forex and other markets.
With that in mind, let's take a closer look at the pros of self-directed investing and when to use this approach.
Key Advantages of Self-Directed Investing
Nearly 45% of self-directed investors went this route because they enjoy making their own investment decisions, according to a recent survey conducted by the Ontario Securities Commission (OSC). More than one-third said that financial advisors are too expensive, and 27% started to invest on their own so they could take more risks.
Without a doubt, one of the main advantages of DIY investing is that you have complete control over your actions. That means you can pick from virtually every investment product and asset class out there, decide when to buy or sell, and manage everything directly from your laptop or mobile devices.
Perhaps not surprisingly, 56% of self-directed investors trade using their computers. Approximately 21% do it from their smartphones, and 11% place trades by phone, reports the OSC survey.
This brings us to the next benefit: Opening a self-directed account is as easy as pulling out your smartphone and downloading an app. Most trading platforms offer thousands of investment products and useful tools for managing your assets, including:
- Financial reports
- Educational content
- Stock quotes
- Market insights
- Wealth management tools
- Advanced analytics tools
- Retirement planning tools
- Options trading tools
- Stock and ETF screeners
- Online calculators
- Investment performance charts
What's more, you can use these tools along with an all-in-one portfolio manager like Kubera to connect crypto, brokerage, and bank accounts in one place (more on Kubera later).
Together, these platforms will give you a complete view of your finances and make it easier to stay organized. Plus, you'll be better able to manage your investment portfolio and track its performance in real-time.
Another advantage of self-directed investing is its low cost. Fidelity, Merrill Edge, Webull, and other brokerage platforms offer commission-free trading and have no account minimums. Some also provide access to human advisors or hybrid robo-advisors, but these services are low-cost.
In today's digital era, anyone can sign up for self-directed brokerage accounts to buy and sell securities with the click of a button. If you're a beginner, you can always use robo-advisors to minimize risk.
However, being able to make your own investment decisions is a double-edged sword.
If you do it right, you'll end up with a strong, diversified portfolio and create passive income. But if you have little knowledge of financial markets (and investing in general), you could lose everything in the blink of an eye.
How to Get Started with DIY Investing
As discussed above, anyone can start investing in just a few steps without the need to hire a professional. But even so, you still need to research the different types of investment products, read expert insights, and keep an eye on market movements.
Once you’re ready to get started, here are the basic steps we recommend you take.
First, define your investment strategy and study the primary asset classes, such as stocks and bonds. Review your finances, set realistic investment objectives, and assess your risk tolerance. Determine what you need the money for and then try to identify the right assets.
If, say, you want to save for retirement, consider investing in a Roth IRA. This option is available to those who have earned income from a job. If you simply want to diversify your portfolio, you may invest in non-correlated assets like gold, real estate, crypto, or NFTs.
Note, though — all investments carry some risk. What's more, non-deposit investment products are not bank-guaranteed or FDIC-insured. The Federal Deposit Insurance Corporation, or FDIC, only insures traditional bank deposits.
Given these aspects, it makes sense to diversify your portfolio by investing in different asset classes, suggests the Financial Industry Regulatory Authority (FINRA).
Second, you need to consider what kind of investor you want to be.
For example, active traders buy stocks, bonds, or other securities and sell them shortly after to maximize their returns. Basically, they take advantage of short-term price fluctuations. Other investors are more interested in medium- or long-term gains.
Third and finally, you’ll want to choose an investing platform that meets your needs.
Take into account the following aspects:
- Pricing and fees
- Account types
- Investment options
- Access to financial information
- Smart trading tools
- Account protection and security
- Minimum account balance
- Deposit minimums
- Access to advisory services
- Payment methods
- Customer support
- Ease of use
Ideally, look for brokerage platforms regulated by the U.S. Securities and Exchange Commission (SEC), the Securities Investor Protection Corporation (SIPC), or other major financial regulatory authorities.
For example, Interactive Brokers is a registered U.S. broker-dealer and Futures Commission Merchant that complies with the rules enforced by FINRA and other government agencies. The same goes for most banks and financial institutions offering self-directed investment options.
Tips for Keeping Track of Your Investments
Any investment advisor will keep track of and manage your assets as part of the deal. But if you're a self-directed investor, you'll have to do things yourself.
One option is to create a spreadsheet to track your assets, from stocks and bonds to insurance products. You'll list the funds in different accounts, monitor the wins and losses, and decide on the best course of action. The problem is that the more asset classes you add, the harder it gets to keep track of everything.
FINRA recommends assessing your investments in relation to your portfolio strategy, among other factors. Basically, it's not enough to monitor the returns of a particular asset class or investment product. Instead, you need to monitor and optimize your overall investment strategy.
Things get even more complicated for investors with multiple accounts on different brokerage platforms, says FINRA. This also applies to those who use complex investment strategies or have both tax-deferred and taxable accounts.
A better approach is to use a portfolio management app like Kubera.
Kubera’s personal balance sheet software easily connects to thousands of modern bank and brokerage accounts. You can also add crypto accounts, collectibles, real estate, cars, retirement planning documents, and more.
With Kubera, you'll get a complete and detailed picture of your diversified portfolio — including net worth growth, internal rate of return on investments, changes in asset allocation, and more.
Check out how Kubera works, check out the simple pricing structure, and sign up in seconds to try it yourself!
What to Look for in a Portfolio Tracker
As a DIY investor, you have to choose the best financial tools to track your total net worth, manage your assets, and diversify effectively.
For starters, you'll need a robust portfolio tracker that has some or all of these features:
- User-friendly interface
- Investment analytics and reporting tools
- Forecasting capabilities
- The ability to connect investment accounts
- Retirement planning and tracking
- Budgeting tools
- Automated investment tools
- Legacy planning tools
- Easy-to-read charts and graphs
- Multi-currency and multi-asset support
- Access to real-time data
- Advanced security features
Generally, it's best to select a portfolio tracker that allows you to monitor all your accounts and assets in one place. This way, you won't have to use different apps to track your crypto investments, stocks, NFTs, credit card debt, real estate, and so on.
Also, make sure you choose a platform that uses two-factor authentication and other high-level security protocols.
Kubera, for instance, doesn't have access to your banking or crypto account login information. Instead, it uses third-party financial data aggregators to bring all of your accounts under one roof. We also conduct external security audits and follow bank-level security standards to ensure your information is safe.
Apart from that, it's important to consider your investment objectives, technical know-how, and personal preferences.
For example, it makes sense to use a mobile app to track your investments if you don't want to be tied to your laptop or PC.
Also, note that some portfolio management tools work best for seasoned investors and may involve a steep learning curve. If you're just getting started, choose a tool that's easy to use and can track a large variety of assets, not just traditional investments.
Take Control of Your Investments with Kubera
Online investing comes with its share of challenges, especially for those who want to handle things themselves.
Whether you're a novice investor or someone switching from managed investing to self-directed investing, it's essential to spread your money across different assets. Moreover, you have to set realistic goals based on your risk profile, experience, and financial knowledge.
Choosing a robust investment platform is just as important, but you also need the right tools to track your portfolio and financial accounts. That's where Kubera comes in.
With Kubera, you can see all your investments in one place. Plus, you have the option to track your net worth, manage multiple crypto wallets, and measure the rate of return on a diverse portfolio — all from a single dashboard.
Ready to get started?
Sign up to try Kubera and fully leverage all our modern capabilities as your portfolio grows.
Not quite ready to say goodbye to your trusted financial advisor? That’s no problem for Kubera. We created our white-label solution just for folks like you. All your financial pro has to do is make Kubera part of their client portal and they’ll be offering an even more modern, complete experience to their clientele — that’s you! — in no time.