I recently asked Professor Moshe Milevsky what he thought were some of the pitfalls of do-it-yourself (DIY) investing. Professor Milevskyteaches at York University and has published dozens ofarticles and several books on topics relating to personal-finance topics. Here is what he said:
1. If you are doing-it-yourself (DIY) simply to avoid having to pay mutual fund fees or investment advisory fees, remember that your time is money too. You have to spend quite a bit of time to learn and understand the investment environment as well as financial markets. Make sure you are willing to invest the effort. Half measures are not rewarded.
2. Dont invest in something unless you are absolutely certain you understand how it works. This may sound like a clich, but it’s critical that you perform your due diligence from beginning to end. Remember that if something goes wrong, you only have yourself to blame, and there is nobody else to sue.
3. To be a successful DIY investor, you must truly and honestly enjoy the process of investing and relish financial minutia. This is not something you can do out of guilt or necessity. If you treat investing like the odious 60 minutes at the gym every week, or like eating your spinach, you will fail miserably and regret it.
4. Have a personal investment policy statement (IPS) and make sure to place limits and restrictions on your leveraging, margining, short sales, etc. The buck stops with you, so make sure to have a plan. Don’t be a cowboy.