What is DIY investing?

It’s not difficult to get started with investing by yourself

Building a DIY investment portfolio is where you do everything yourself. You’ll be choosing your investments and managing them as you go.

Now, while it might sound intimidating if you’ve never invested before, it doesn’t have to be complicated. Here’s everything you need to know about DIY investing.

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Here at Be Clever With Your Cash, we’re not regulated to give you financial advice. We aim to give you the facts about a provider or investment but it’s up to you to decide if it’s suitable for you. If you’re looking for more personalised guidance, find a financial adviser who can give you specific advice. Remember that your capital is at risk when investing — don’t invest more than you are prepared to lose. 

DIY investing explained 

Essentially there are two ways you can go about DIY investing.

One option is to research and pick your investments, build your portfolio and tweak it where necessary as you go. However, this is quite full on.

And depending on the platform that you choose, the cost of trading can add up if you’re not careful. Yes, you have complete freedom to choose whatever investments you want, but if you’re not experienced it can take a lot of time and work. 

Another option is to opt for ‘passive investments’ like Exchange Traded Funds (ETFs) or index funds, also known as tracker funds. Essentially you can just stick your money in one of these and leave it to grow over time.

These investments track the performance of an index, like the FTSE 100 (an index of the top 100 companies in the UK), or a specific sector. An index fund often replicates the performance of the index by buying the underlying companies, but for a large or complex index other methods may also be used. If the index goes up in value, so will your investments, but it’ll also go down if it falls.

The benefit of index funds and ETFs is that because they contain hundreds (or sometimes thousands) of stocks and bonds, your investment is what we call ‘diversified’. This is what investors strive for as it means the risk is spread. The idea is that if one investment falls, gains elsewhere should pick you back up. These funds are also typically low-cost and you can get started with small sums. 

Plus, there’s a lot less work to do so they’re a good choice for less experienced investors. 

What are the pros of DIY investing?

DIY investing is usually one of the cheapest ways to grow your money, especially if you opt for an index fund or ETF. With low fees, it means you can keep more of your returns. 

This option is also very straightforward and not particularly time-consuming either – you just let your investments do their thing with very little work. Plus, if you go for one of these passive investments you’ll be well diversified so the risk is spread.

With DIY investing you have complete control over your investments and even if you’re not an experienced investor with loads of money you can start with small sums and you learn as you go. This is also the case if you opt for a robo advisor too – although that’s a slightly different approach to investing. 

What are the cons of DIY investing?

If you’re picking your own individual stocks and plan to trade, costs can start adding up as some platforms charge trading fees. 

If you go with this option, and you’re not an experienced investor, there’s also a chance you’ll trade too often or make rushed decisions that might not be the right ones. This approach can also be time consuming.

If you opt for passive investments, you don’t have much choice – you’ll go with an index fund or ETF so your investments are already decided within that fund. 

Your returns depend entirely on the performance of the index being tracked, so if it falls, so will your investment. Plus, the goal of these investments isn’t to do better than the market it’s tracking – they just try and mirror them. With a more active approach, decisions can be made to try and outperform certain markets. 

You might need to rebalance your portfolio from time to time which means buying or selling investments to ensure the balance of different assets is still in line with your goals and attitude to risk. It can be tricky to get this right and you may benefit from some guidance if you’re not a confident investor.

Is DIY investing worth it?

Yes. In fact it’s worth considering for any investor regardless of their experience or how much money they want to invest. 

For those who want to keep costs low and time spent investing at a minimum, going for a passive investment like an index fund or ETF, is a great place to start.

We’ve got separate articles on investing including investing for beginners, over in our investment hub, for more information.