DIY Investing and the value of financial advice

CatalystInvesting, Lifestyle, Planning

Do-it-yourself (DIY) investing in South Africa has surged in popularity – especially over the last 12 months. Cost-effective online trading and investment platforms, like EasyEquities, is one of the key-drivers behind this trend.  According to the interim results published by Purple Group, the owner of EasyEquities, platform assets grew to R26.9 billion – a year-on-year increase of 70.3%. EasyEquities now has 520 000 retail investment accounts – a whopping increase of 161% from 2020.  In the US, the popular trading platform, Robinhood, reported to have 18 million funded accounts – an increase of 151% from 2020. DIY investing effectively places the investor in charge of his/her own financial destiny – with many DIY investors questioning the need for professional financial advice.

According to Johann Rossouw, a Certified Financial Planner at Fiscal Private Client Services, investing has never been easier. There are hundreds of online trading platforms and a plethora of resources aimed at educating first-time investors. “DIY investing has, to a large extent, revolutionised the financial services industry and provided millions of people with an opportunity to start their own investment journey. In doing so removing the biggest barriers to entry, namely costs and education,” he says.

Investors now have the power to buy and sell assets like shares, REITS, ETFs, cryptocurrencies, and commodities at the push of a button, but, says Rossouw, “as we learned from Spiderman, with great power comes great responsibility.”

The biggest challenge for the DIY investor is to select an investment that will help them achieve their financial goals. This can be an overwhelming task even for a savvy investor. “You can strike it lucky and pick up the next Apple or Microsoft share for a few cents, but there is a very real possibility that the investment you choose ends up being a dud and that you lose money in the process – making your financial goals more difficult to achieve,” adds Rossouw

Other aspects today’s DIY investor needs to consider before going this route include (but are not limited to):

  • Asset allocation decisions,
  • Investment vehicle selection,
  • Tax implications
  • Investment strategy.

“If, as a DIY investor, you are not comfortable in making any of these decisions, the best route is to consult a Certified Financial Planner who can provide you with objective and transparent financial advice. Consider the fact that a Certified Financial Planner has typically spent at least 4 years studying and sat through gruelling board exams to be able to help you make the most appropriate choices” explains Rossouw.

He adds that it is important to note that a financial planner’s job is not to predict which investment will give you the best return over the next couple of years. Unfortunately, financial planners do not receive a crystal ball when they finish their studies – be extremely careful of snake oil salesmen promoting the next big thing on the investment front. “The real value of working with a financial advisor is to avoid making expensive mistakes. It’s less about selecting the best investment and more about making smart decisions with all aspects of your money.

DIY investing has had a huge impact on the investment industry – of that there is no doubt. It has, however, also highlighted the importance of objective financial planning advice. Are Financial Planners doomed to suffer the same fate as the Dodo? Rossouw does not seem to think so. “As long as Financial Planners keep making decisions that are in the best interest of their clients (and not their own pockets), there will always be room for properly thought-out financial planning advice”.