Investing on your own (self-directed): Pros and cons
Editorial staff, J.P. Morgan Wealth Management
- Investing on your own – without a financial advisor – is an option if you’re willing to put in the time and effort.
- Online brokerage platforms can make independent investing easier and more accessible than ever.
- Convenience doesn’t necessarily make solo investing the better choice than working with a financial advisor. As with any investment decision, your success depends on your knowledge, preferences and unique financial goals.
- Some investors do both: they self-direct some assets and work with an advisor on others.
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 more control, it can also 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 fairly straightforward – you’ll begin by opening an online brokerage account, which could be a general investment account or an individual retirement account (IRA).
During setup, you’ll need to provide personal information like your Social Security number and details about your finances and goals. Broker-dealers collect this information to help meet regulatory requirements and understand an 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 the Financial Industry Regulatory Authority (FINRA) offer educational tools to help you learn how investing works and which options might fit your needs.,
After you’ve built your portfolio, review it regularly and rebalance as needed to confirm it aligns with your evolving financial goals. Keep in mind, though, that frequent trading can mean additional costs and potential tax implications.
Get up to $1,000
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 several 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 deeper into their investment choices.
- 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, you may miss out on 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.
- Fewer choices in some areas: Depending on the platform, you may have less access to certain products or planning solutions (for example, some annuities or insurance solutions) that may be more readily available through an advisor. The inability to tap into these opportunities can restrict diversification 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.
- 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 best for your needs, start with the pros and cons above and add any others that matter to you. Which factors are most important – instant access and decision-making control, or guidance and support during volatile markets?
If having direct, real-time control over your portfolio is a priority, investing on your own may be a good fit. If you’re concerned about making emotional decisions, particularly during market volatility, working with an advisor may be the better fit.
It’s also important to note that many investors choose both – taking the do-it-yourself approach with some money while working with an advisor on the rest – 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.
Diversify your portfolio
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 mutual funds or ETFs can be a way to get broad market exposure and diversification at a low cost. 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 are volatile. Consider setting up automatic recurring investments to help take some of the guesswork and emotion out of deciding when and how much to invest.
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 – periodic reviews can help you stay on track.
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 a 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.
In most cases, yes. A brokerage account allows you to buy and sell investments like stocks, bonds, mutual funds and ETFs on your own. Many online brokerage firms don’t charge commissions for certain transactions, though other fees and costs may still apply. Depending on your objectives, you can open a general investment account or an IRA.
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