Going it alone isn't a fan favorite among Wall Street investment professionals, who say the risks of not working with a pro are both real and risky. But if do-it-yourself investors can bring these money management tenets to the table, their chances of portfolio profit are better than the money mavens think.
Buffett does his own homework, too.
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They Aim to Hit Singles - Not Home Runs
Successful DIY investors recognize the fact that every bit counts, and that it's more sensible to seek out small gains and realistic goals than it is to look for the home run, says Caleb Backe, a successful long-time do-it-yourself investor and professional marketing manager in Los Angeles. "Part of what makes a do-it-yourself investment approach a more lucrative one than relying on an investment professional is that in terms of dedicated time, you get what you put in," he explains. "Therefore, you have the ability to micromanage your investments and take advantage of small, easy gains achieved with low-risk, sensible investments. In the long-run, this is the most risk-free and sensible approach to do-it-yourself investing."
Discretionary Income Goes to the Stock Market
When most people get paid from work, they go spend money, notes Ryan Stewman, a long-term do-it-yourself investor. "They spend it on clothes, going out and on vacations," he says. "When I get paid I go shopping, too. I shop for stocks. I get the same feeling buying $1,000 worth of stocks as I do from buying $1,000 watch - except the stocks make me money." Every Friday when Stewman gets paid, he forces himself to put at least $1,000 into his trading account and spend it on a stock. "I've done this for many years and now have a seven-figure investment portfolio from doing so," he adds.
They Don't Invest Emotionally
"I'm a do-it-yourself investor and I think one great habit is to never check your portfolio during the day," says Jim Wang, founder and financial writer with Wallet Hacks. "Forget the day-to-day market movements and just make sure your allocation is right for your age and risk profile, re-balanced once or twice a year, and move on. If you check it hourly, you may act emotionally and make money moves you'll regret later."
They Have a Cash Cushion
Make sure you have enough of a cash cushion out of the market to last one in case things turn south in the stock market, advises Matthew Eads, portfolio manager at Eads & Heald Investment Counsel, in Atlanta. "Also, to protect that cash cushion, if you own stock in the company that provides your primary source of family income, sell the company stock," he says. "If the company goes under while you own company stock, you get a double-whammy of bad luck."
They Invest Consistently
The key to investment success is to invest early and often, says Robert Johnson, CEO at The American College of Financial Services, in Bryn Mawr, Pa. "Investors who are successful in building wealth are consistent investors and commit funds to the market whether the market is going up, down or sideways," Johnson states. "Time is the greatest ally of the investor, as time allows for compounding. None other than Nobel laureate Albert Einstein is rumored to have said that "compound interest is the eighth wonder of the world." In other words, he or she who understands it, earns it, and he or she who doesn't, pays it."
They Focus on Fees
One of the surest ways to build wealth is to put as much of your money to work as possible, and that means investing in vehicles with low fees, notes Johnson. "Just like investment returns compound, the effect of fees compound over time, as well," he says.
They Know What They Own and Why
Whether you invest in ETFs or individual companies, you should have some knowledge about the investment, says Brian Barnes, CEO of M1 Finance, in Chicago. "You don't need to be the world's foremost expert, but understanding the range of potential outcomes and what needs to happen for your investment to be successful helps instill confidence," Barnes explains. "If you don't have a basic understanding of your investment, you'll be guessing what to do every time it moves."
Do-it-yourself investors should know where the world's best money managers are investing, says Barnes. "In fact, at M1, we allow people to build portfolios that replicate hedge fund holdings," he notes. "We also make it easy to share portfolio make-ups with friends and family. Find someone who you agree with on investing philosophy -- for example Warren Buffett or Peter Lynch -- and piggy-back their work by copying their investments.
They Learn From Their Mistakes
If you are a long-term investor, you'll make many mistakes, says Fred Schebesta, CEO of Finder.com and an experienced, long-term stock market investor. "Many people tend to get burned and turned off altogether, but learning from your mistakes is an important habit to cultivate in order to improve your investment habits," he says.
They Arm Themselves With Data
Smart investors regularly use the stock picking tools of modern investing, and go online to get the resources required for making highly informed investing decisions, says Clem Chambers, CEO of ADVFN, a global stock market information. "You'll need real-time share prices, fundamental information, portfolio tracking tools, investment news and a gauge of stock market opinion/sentiment via bulletin boards/discussion forums."