DIY Investing vs. a Financial Advisor: How to Decide

Investing on your own can be both empowering and cost-effective. With online resources and trading apps, it’s easier than ever to take control of your money. But does the do-it-yourself—or DIY—approach always lead to the best financial outcome?

This article will explore the pros and cons of managing your own investments versus working with a financial advisor. You’ll learn about the challenges of DIY investing, the value professionals can provide, and how to decide which approach is right for you.

Understanding the Appeal of DIY Investing

As the name suggests, DIY investing is when you assume full control over your portfolio. Rather than relying on a financial advisor, this is a hands-on approach where you make trades, monitor results, and adjust your asset allocation. This enables you to save on management and advisory fees while building wealth as you see fit.

Instead of direct professional advice, DIY investors turn to a wide variety of free information to guide their decisions. YouTube videos, investing forums, social media, and blog posts are all widely available sources of guidance. If you’re willing to put in the time and effort, gaining the requisite knowledge to manage your portfolio alone is accessible and attainable.

For example, many DIY investors turn to the famous three-fund portfolio created by the late John “Jack” Bogle, the founder of Vanguard. This simple approach involves investing in three funds—domestic stocks, international stocks, and a bond index. It appeals to DIYers because it offers low fees, broad diversification, and an easy-to-maintain strategy, making it ideal for long-term goals like retirement.

Beyond cost and a wealth of accessible information, DIY investing can be an empowering process for people. Instead of relying on external advice from a professional, you bear full responsibility for your decisions. This requires dedication to following market trends, researching companies, and analyzing information, which some may particularly enjoy or find fulfilling.

Challenges for DIY Investors

DIY investing, while beneficial in many ways, can also present significant obstacles for its adopters. No matter who does it, investing is a demanding process that requires careful analysis, research, and decision-making. With the task entirely up to you and directly impacting your finances, there is much less room for error.

Below is a breakdown of the various obstacles you may face as a DIY investor:

Lack of Time

Christine Mueller Coley, CFP^®, CDFA^®, wealth advisor at SteelPeak Wealth Management, shares that she “worked for an online/self-directed firm earlier in [her] career” and that the “biggest takeaway was that people thought they would have much more time to research companies to invest in and found that it became more stressful than fun.”

While information is readily available, it can become overwhelming for those with less knowledge or practice with investing. So, if you work a full-time job or are a busy parent, it may not be feasible to dedicate much time to a hands-on portfolio management approach.

Managing Emotions

Another issue, outlined by Scott Neu, AIF^®, a financial advisor at Reinke Gray Wealth Management, is “managing emotions—reacting impulsively to market volatility can lead to buying high and selling low, which ruins long-term returns.”

Similarly, managing your money could lead you toward timid decision-making to minimize as much risk as possible. “I use the analogy of how a doctor wouldn’t operate on their own child because they would be too emotional,” Coley relates.

Compliance

A potentially overlooked angle to self-investing is the complexity of complying with trading and tax laws. Thomas W. Slattery, Esq., senior attorney at West View Legal, cautions that “investing is not just about the profits and wealth” but that instead, you must “deal with the markets by carefully navigating around the several laws that have been specifically enacted to prevent fraud and impose taxes.”

More specifically, Slattery names “insider trading” as an important consideration. “Insider trading laws are quite subjective in nature and it is up to the court’s discretion what is ‘material non-public information.’ Therefore, any advance knowledge of earning figures or even minor adjustments may land an investor in trouble,” he explains.

Similarly, complying with tax laws is vital as an investor. If taking a hands-on approach, much of the legwork is on you to ensure you report and pay taxes on long- and short-term capital gains. Making mistakes can cause you to incur fines and cut into your returns.

How Financial Advisors Add Value

Many investors choose the DIY route to save money or maintain control over their portfolios. However, working with an expert can offer advantages beyond just picking stocks. Financial advisors are experienced professionals who guide you through money management, planning, and investing. Here are some specific ways they can help:

• Objective-based decision making. An advisor may act as a buffer between your emotions and portfolio, helping you make the right choices. Some advisors may also exercise discretionary authority to invest on your behalf.
• Aligning investments with a comprehensive financial plan. A professional will often build a comprehensive plan for you. As you invest, it’ll be with your short- and long-term goals in mind.
• Access to advanced tools and research. Advisors generally have access to specialized tools and research to inform their investment decisions.
• Avoiding critical mistakes. While investing on your own is empowering, you may also be susceptible to mistakes without the same background as an experienced professional. Working with an expert can help you have better foresight and accessible knowledge to avoid setbacks.

Who Should Consider DIY vs. Hiring a Financial Advisor?

Whether you should select the DIY approach or hire a financial advisor comes down to your unique needs. Some may begin as the former and end up working with a professional as their wealth grows, for instance. The key to making the right decision comes down to your comfort level with investing, knowledge, and what you need at a given time.

When to Consider DIY Investing

DIY investing is cost-effective and, depending on what you need, can be simpler than hiring an advisor. It may be the right route if your finances are straightforward and you’re confident in your investment knowledge. Additionally, Coley says that it’s “important to understand the time commitment to create a portfolio that is diversified and properly risk-adjusted so it doesn’t keep you up at night or distract you from other things during your workday.”

When to Consider an Advisor

You should consider hiring a financial advisor if your finances are becoming complex or challenging. For example, if you’re a high-net-worth individual, you may require professional assistance to minimize your tax burden, manage risk, and maintain your wealth.

If you’re “navigating complex financial situations—such as retirement planning, estate considerations, or significant life transitions like selling a business—an advisor can provide strategic tax planning, risk management, and personalized financial roadmaps,” says Neu.

Additionally, an advisor may be worthwhile if you simply don’t have the time or discipline to keep yourself on track. Alternatively, a low-cost robo-advisor may be ideal if you’re a beginner with simple finances but with the same obstacles. These are automated portfolio managers that invest on your behalf based on your goals, risk tolerance, and time horizon.

Bottom Line: How to Decide What’s Right for You

As you decide which investing route is right for you, it’s fundamental to be realistic about your financial situation and what you can handle. If your needs are becoming complex and you have little time to devote to portfolio management, it may be time to seek advice. Conversely, if you have basic needs and are knowledgeable, DIY investing might be all you need.

But what if you need to hire an advisor but still want a hands-on role? Jake Falcon, CRPC, CEO at Falcon Wealth Advisors, shares that he employs a “collaborative approach,” where he encourages “open communication” and provides “timely updates.” As a client, you should find a professional who keeps you involved and is willing to work in tandem. “This helps ensure that they feel empowered and informed while still benefiting from professional guidance,” says Falcon.

Financial advisors can be an invaluable resource because of their experience, education, and expertise. However, be aware that, despite some studies, it’s difficult to quantify an expert’s true value to your portfolio. The decision comes down to whether the benefits, such as expert guidance, tax optimization, and long-term planning, justify the cost of advisory fees for your situation.