Are you a DIY investor?
Do-it-yourself (DIY) investors are always on the lookout for stock tips and asking their financial advisor to make lots of moves into and out of the stock market. And even though they have a professional financial advisor, they likely have another account on the side that they use to make frequent personal trades.
DIY investors are almost universally bad at investing. They often fall victim to the DALBAR effect, named for the market research firm that tracks how dramatically individual investors underperform the stock market over time.
This happens because the DIY investor thinks they know what they’re doing, so they engage in lots of buying and selling.
The extra effort rarely pays off. Over the 20 years from 1997 to 2017, the S&P 500 (a broad index of large U.S. stocks) returned an average of 7.2% a year. That return means that you would double your invested money every 10 years.
DALBAR finds, however, that the average individual investor saw a return of just 2.6%. At that rate, it would take 30 years to double the balance in an investment account.
DIY investors end up on the losing end because they make irrational and sometimes uninformed investing decisions. It’s what the pros call emotional risk — the chance that you’ll end up selling when stocks fall. For many people, having an unbiased financial adviser is the solution.
Azzad’s financial advisors are not paid commissions. Instead, their interests are aligned with yours; they make money when you do. They work to understand your needs and act as strategic business partners allied with you to help achieve your goals.
Give us a call today at 888.86.AZZAD to talk to one of our financial advisors about your financial needs. They can give you a tutorial on how risk-adjusted investing works in the real world.