Investing on your own: The pros and cons
Editorial staff, J.P. Morgan Wealth Management
- Investing on your own – without the guidance of a financial advisor – is an option if you’re willing to put in the time and effort.
- Online brokerage platforms, with available tools and resources, make independent investing easier and more accessible than ever.
- The ease and access of solo investing doesn’t necessarily make it a better choice than working with a financial advisor. As with every investment decision, your success depends on your knowledge, preferences and unique financial goals.
- Some investors choose to invest some of their assets on their own and invest another portion of their assets in collaboration with a financial advisor.
Thanks to online brokerage platforms, investing on your own has never been easier. You can now build and manage an investment portfolio without ever setting foot in a financial advisor’s office.
While going solo can offer independent investors more control, it also can require a significant time commitment and a thorough understanding of how investment options work. If you’re thinking about managing your own investments, make sure you understand the potential advantages and trade-offs.
How to invest on your own
Getting started as a do-it-yourself investor is pretty straightforward – you’ll begin by opening an online brokerage account, which could be a general investment account or an individual retirement account (IRA).
During the setup process, you’ll need to provide personal information like your Social Security number, income data and investing goals. The U.S. Securities and Exchange Commission (SEC) requires brokers to collect this information to comply with regulatory requirements and help understand the investor’s financial situation.
Once your account is up and running, you’ll generally have access to a wide variety of investment options, such as stocks, bonds, mutual funds and exchange-traded funds (ETFs). Each type of investment comes with different risks, so it’s important to understand them. The SEC and Financial Industry Regulatory Authority (FINRA) offers educational tools to help you understand how investing works and which options might fit your needs.,
After you’ve built your portfolio, you’ll want to check in regularly, rebalancing your investments as necessary and confirming they align with your evolving financial goals. Keep in mind, though, that frequent trading can trigger extra fees or even tax consequences.
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When you open a J.P. Morgan Self-Directed Investing account, you get a trading experience that puts you in control and up to $1,000 in cash bonus.
The pros and cons of investing on your own
As you decide if investing on your own is the right fit for you, it may be helpful to weigh some of the pros and cons.
Potential pros of investing on your own
Solo investing has plenty of benefits. Below are just some of them to consider:
- More control: As a self-directed investor, you decide what to buy, when to sell and how to build your portfolio – all on your own timeline. This level of control can be both rewarding and empowering, especially if you enjoy staying involved in all of your financial decisions.
- Potential to save money on fees: Financial advisors typically charge fees of some kind; by going solo, you’ll avoid some of those costs. Plus, many online brokers now offer commission-free trading for stocks and ETFs.
- Online tools and resources: Online platforms now offer tools once reserved for professionals, including real-time data and research reports, which can be helpful for investors who want to dig into their investment choices in a deep way.
- Self-directed learning: Managing your own investments can be an excellent way to develop financial literacy. The more you learn about how markets work and how to read financial statements, the better equipped you may be to make smart financial decisions.
Cons of investing on your own
While self-directed investing has plenty of advantages, there are some downsides to consider as well:
- Lack of professional guidance: By not working with a financial advisor – some with decades of investing experience – you’ll miss out on investing under the guidance of a professional.
- Potential for risky investments: Some investment products can be risky if you don’t fully understand how they work. And without professional guidance, you may not realize the potential downside of an investment decision until it’s too late.
- Potential for emotional decision making: It can be easy to make emotional decisions, such as panic selling during a downturn, if you aren’t working with a financial advisor.
- Less choice: You may find it difficult to access certain advanced investment products – e.g., annuities, insurance, 529 plans – often available through financial advisors. The inability to tap into these opportunities can restrict diversity and potential growth.
- Time commitment: Investing on your own may require a significant time commitment – especially to do it well. If you don’t have the interest or the bandwidth, it might not be for you.
- Research and monitoring: You’ll have to commit to ongoing research and monitoring if you want to stay on top of your portfolio. This level of due diligence can be substantial, and some self-directed investors underestimate the effort required.
- May be difficult if your goals and financial situation are complex: If your financial situation is uncomplicated and your goals are relatively straightforward, self-directed investing might work well. If you have complex financial needs that involve sophisticated tax planning or estate planning, however, you may benefit from professional advice.
How to weigh the choice of whether to invest on your own or with an advisor
As you weigh what’s a better fit for your needs, assess the pros and cons listed above and any potential others. As you do this, it may be helpful to single out some of the pros and cons to this choice that are the most meaningful to you. Is it, for instance, meaningful to you that you can have instant access and decision-making control over your portfolio? If that’s the case, investing on your own may be the best fit for your needs. Are you worried you’ll make emotional investment decisions, particularly during market volatility? Working with an advisor may be the better fit.
It’s also important to note that many investors choose to go down both routes simultaneously – taking the do-it-yourself approach to investing with some of their money and working with an advisor to manage another portion of their money – and that’s another option to consider, too.
Tips that can help you invest on your own
If you decide to give it a go and invest on your own, here are some tips that may help you.
Set clear goals
The SEC recommends that solo investors create a financial plan outlining how much they want to invest and over what time period. Investors should also identify their financial goals and determine their tolerance for risk. Having clear goals will guide your investment decisions and keep you focused during periods of market volatility.
Building a diversified portfolio means spreading your investments across different asset classes, industries and geographic regions. Diversifying doesn’t guarantee you’ll never lose money, but it can help reduce your risk.
Start with a simple approach
Investing in low-cost mutual funds or ETFs that provide broad market exposure can be a way to get diversification along with professional management. As you gain experience, you can gradually add in different investment options like individual stocks and bonds if you ultimately want to.
Stay disciplined and consistent
Develop a disciplined approach to investing and stick to it, even when markets get volatile. Consider setting up an automatic investment program to remove some of the guesswork and emotion involved on when or how much to buy or sell.
Review your investments regularly
Schedule regular check-ins to review your portfolio to ensure your investments are still aligned with your goals and risk tolerance. You don’t have to check daily – monthly or quarterly reviews are usually enough for most investors.
The bottom line
Self-directed investing can be rewarding, but it’s not the right choice for everyone. Be honest about your own capabilities and limitations: If you don’t have the time, interest or knowledge to manage your investments effectively, there’s nothing wrong with working with an advisor or finding an online managed account. The most important thing is to choose an approach that advances your long-term goals.
Frequently asked questions about investing on your own
Yes, most online brokerage platforms allow you to purchase mutual funds directly. Just make sure to read the fund’s prospectus to understand the fees and investment objectives before you buy shares of a mutual fund.
A brokerage account allows you to buy a variety of investments, where you generally pay a transaction fee for each trade. If you trade on your own online, many firms don’t charge for certain transactions like stocks. Depending on your objectives, you can open a general investment or an IRA brokerage account.
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Editorial staff, J.P. Morgan Wealth Management
