Investment Through DIY Investment – How Can You Be Successful If You are A Newbie?

A discussion I have with a friend:

Ms Friend: Hey my old friend, what do you think about investing in funds with DIY platforms?

Me: They are what they are. You invest with them. You’re on your own.

Ms Friend: I am looking at the option of using one of them.

Me: Oh well. Do so then.

Ms Friend: But I am new to investing though. I know you have been investing the last 20 years and I know you’ve done well enough to be financially independent. Can you show me the ropes and get started?

Me: Why not go through an advisor then? It will save you a lot of trouble, time and effort.

Ms Friend: I have time on my hands now and I believe I can do it on my own.

Investing in funds (in Singapore we also know of these as ‘unit trusts’) can be a good way to accumulate wealth, as the potential gains can far outweigh other financial solutions such as savings and fixed deposit accounts, and insurance products.

Funds offer investors professional management, and importantly, diversification as a vehicle to manage risks.

The value of funds however, can swing depending on conditions such as the performance of the companies which the funds hold equities in, and global economic factors. How then, do you invest in these funds? One way is through DIY (Do-It-Yourself) investment platforms.

We have seen a flurry of DIY investment platforms in the last few years, and according to my last count, there are more than 10 of them in the market. The DIY investment sector, which started 20 odd years ago, has exploded. They are heavily marketed on television, at the MRT stations, and certainly on the social media platforms.

But what do these DIY investment platforms offer? They typically allow retail investors to build and invest into a suite of investment funds, or portfolios, on a DIY basis, without the help of an advisor or financial intermediary like a bank. The investor will then have to ‘self educate’ on the nuances of fund investments. A sort of ‘Learn-As-You-Invest’ proposition.

Benefits of DIY Platforms

What is the appeal of such DIY platforms? Many are drawn to these platforms due to the following:

• The process of buying and selling funds, which are professional managed by fund managers, some of whom belong to big investment houses, is very straightforward. Just a few clicks are needed. There is no need to discuss extensively with a financial advisor or bank officer, or furnish ‘Know Your Client’ documents as is the case with buying funds through intermediaries.
• One can invest at his own pace, anytime, anywhere as he has full ownership and control of the investing process
• Low fees, at face value.

These DIY platforms attract investors, including first-timers like my friend. However, some, especially those who have little or no prior investment knowledge, are apprehensive.

My friend is 52, has no prior fund investing experience, and is of a conservative profile. She has expressed to me recently she has considerable resources idle, but because of the low interest environment, she feels the need to work her money through investment. While she prefers to explore the DIY avenue instead of through an advisor, she is concerned about her lack of experience, even though she is a qualified accountant.

While some of these DIY platforms use ‘robo advisers’ to help, she wants to go in with her eyes opened and does not want to rely entirely on an algorithm. She thus prefers to go through a ‘tutorial’ to help her understand how she can navigate through the investment process effectively, and watch out for pitfalls, given her risk-averse stance. If she were to make a 10% error of judgment, that translates to a significant amount given her resource base. With the short runway to retirement, an error could put a significant dent to her retirement lifestyle.

Another friend of mine, a senior professional in the IT industry, decided to plunge into the markets, on his own, for the first time in July 2021. As an IT industry practitioner for more than two decades, he has an inherent bias, and ploughed his resources into that sector. In December 2021, I had a look at his portfolio and he was suffering considerable losses of more than USD$120,000 (~50% loss on portfolio value).

On closer inspection, that was the case because he had all his investments in ‘growth stocks’ and China-related IT and internet stocks. He violated one of the tenets for successful investing, which is ‘diversification’. Those losses have since widened given rising interest rate expectations (which hit his portfolio much harder), and other macroeconomic headwinds.

Even DIY Needs Help

What my friends, and a first-time investor can do if they choose to invest on a DIY basis, is to approach a licensed financial advisor representative for a fee-paying service, to know first-hand, the key issues, approaches, and where the booby-traps are on the investment journey. There is a huge body of investing knowledge that a financial advisor representative specialising in investments can provide. Granted, unlike with insurance solutions, there are no guarantees in investments.

However, with sound and proper guidance from a competent and professional financial advisor representative, a person can invest with a better posture to enhance the chances of success, and minimise the probability of significant losses.

Going with such a service can be a cost-effective option compared to using an advisor-led platform or through a bank, if the person has time, and is confident of acquiring sufficient knowledge and putting the knowledge to good practice. The cost can also be a fraction in terms of the benefits that a newbie investor can derive, by side-stepping investing landmines.

Here are some key advantages of reaching out to a financial advisor while choosing to invest DIY:

• The financial advisor representative can look at your investment not as a stand-alone, but in conjunction with your financial objectives to enhance long-term financial aspirations
• The financial advisor representative, through discussions with you, can identify the subtle points that may not be apparent through the risk profile forms
• ‘Booby traps’ can be identified in advance before heavy losses are sustained
• Strategies of investing can be suggested and put in place, especially given the overall financial objectives and aspirations
• There can be greater clarity shed on complex investment terminologies and concepts
• A list of better performing funds in different asset classes can be provided, as the financial advisor has access to such information
• As you will be investing DIY and paying a fee for financial advice, the advisor can be free of bias in his recommendations

We live in strange times. We face a double whammy of low interest rates with high inflation, and this means that every dollar that we have idle, loses purchasing power fast. There has never been a greater need to invest our money, and putting money in investment funds is one good way as we get the diversification benefits and professional management of our hard earned money. There is however, more to investments than just putting money blindly into funds, and this is where some hand-holding from a financial advisor representative can help as a crash course. You can then begin your investing journey armed with a good level of knowledge, using one of the many DIY platforms in the market.

However, if you think you are unable to put the considerable time and effort to monitor, and put the right process in place, you will be better served investing through an advisor-led platform.

People consider fees when choosing to invest, but what is the point of low fees when the performance may be sub-par because of lack of knowledge and application? Losses, due to poor investing behaviour, can be brutal in treacherous markets. With the right coherent process incorporating the advisor’s know-how, you may still not be guaranteed of making profits, but you will certainly be better off than without. That advisor fee may well save your bacon. And it would have mitigated much of my IT friend’s 50% loss.

Guide to Understanding How to Invest Successfully Using DIY Platforms, Through 9 Areas

Investment funds used to be the domain of banks, but thankfully, in recent years, they are available at a multitude of platforms, some DIY, and some advisor-led, in Singapore. Investing in funds can be daunting for the first-timer, and if a person chooses to roll out his sleeves and invest on his own, as opposed to through an advisor, he should consider a few factors before diving in.

There are many considerations when investing money in funds. To help you get started, I have put together, a list of 9 areas which you must consider to enhance your likelihood of achieving success in investing, and attaining your financial objectives, based on my experience. You can download it here. Unlike with insurance-based solutions, there are no guarantees when it comes to investment. However, when do you take into account the points outlined on this list, you will rely less on luck, and be able to manage your risks and enhance your returns better. You can more clearly identify how your portfolio forms a part of your overall financial objectives. This can help you achieve longer-term financial success.

If however, you find these areas for consideration too overwhelming, reach out to your financial advisor representative for a discussion!

Article by Leon Loh
Email: leon.loh@gen.com.sg

The writer is a financial consultant representing GEN Financial Advisory Pte Ltd