Having immersed myself in the world of DIY investing over the last couple months, I’ve garnered a firsthand look at a number of DIY portfolios with carte blanche access to ask the tough questions. As a result, I wanted to share some of the common portfolio factors that DIY investors get right as well as wrong.
Strong Foundation But Not Always Prepared To Succeed
Although many DIY investors have a solid portfolio foundation, they’re handicapped because they can’t quantify the risk they are taking, or explain how adding or removing an investment will impact their portfolio. That’s not a big deal for beginning DIY investors but a potential red flag for those who have already accumulated wealth to the point where they worry more about losing what they have than earning more. Essentially, they’ve been so focused on growing their portfolios it never dawned on them to develop a plan for what to do once they actually reach their investment goals.
That can be both good and bad news. The positive is that it is possible for current and future DIYers to go out on their own and hit their investment goals. The downside is that DIY investors need to invest more time, energy, and even money into learning how to manage the other side of the investment equation – the risk side. Instead of simply relying on financial ratios or technical analysis as a means of selecting and managing their portfolio returns, DIY investors need to integrate risk metrics like beta, standard deviation, correlation, draw down, and stress tests to protect what’s been accumulated, or to convert savings into income.
The nice thing is you don’t have to pull out the old slide rule to figure this stuff out. There are plenty of websites and software programs to make the job easier. Some of my favorites are available at Morningstar.com. Kwanti.com, and DividendPaycheck.org. Each offers a distinct set of reports and analyses designed to help DIY investors take their investments to the next level. I must confess, I developed the DividendPaycheck.org software (currently available at no cost) to help DIY retirees understand the trade-offs between yield, dividend stability, inflation protection, and stock valuation when building a retirement income portfolio.