By John Drachman
As Americans wait for a post-pandemic return to a normal, they’ve been undertaking more do-it-yourself (DIY) activities from the comfort of home. Along with robust home improvement projects, arts and crafts, and puzzles, they are adding one more: DIY investing.
Just yesterday this socially distant investor class got a big boost as Wall Street finally recaptured its historic losses for 2020 – and then some – as the S&P 500 closed at an all-time high. The index, which serves as a broad proxy for the health of large U.S. companies is now up nearly 5% for the year.
With that kind of gain, it’s easy to see why so many have been lured by the appeal of free trades and a little boredom to join the millions of investors who are trading securities over the Internet. Online brokerages like TD Ameritrade, Schwab and Fidelity have reported strong increases in customer accounts, while the gamified bad boy of the industry, Robinhood, just added 3 million investors.
DIY projects are ideal when you’re stuck at home with some free time and you’re looking for a challenging project. But DIY investing is one sheltering-in-place activity that’s significantly different from such stress-reducing past-times as macramé or chopping wood.
The reason: According to the securities market research firm DALBAR, Inc., DIY investors have consistently underperformed the market due to their emotional habit of selling near market lows and buying near market highs. “Every market crisis is unique and presents different emotional and behavioral challenges to our investment decisions,” Cory Clark, Chief Marketing Officer at DALBAR, Inc. said recently. Simply put, the average Investor is just as likely to miss the right time to enter the market as to exit it.
Separately, Forrester Research has chronicled the changing ways investors have been making decisions for two decades. While the number of “DIYers” has remained relatively stable, more investors are referring to themselves as “validators;” that is, investors who want to “validate” their investment assumptions with a professional advisor. By investing this way, stay-at-home investors retain the excitement of making the final investment decision while allowing their professional to keep their decisions in check and their objectives on track.
The bottom line: Investment advice is in your best interest
It’s a fortunate coincidence that despite the pandemic, the Security and Exchange Commission’s (SEC) Regulation Best Interest (Reg BI) has been rolling out all summer. While Reg BI holds broker-dealers to a higher standard of care governed by key fiduciary principles, the SEC offers a number of educational resources to nascent validators – and other investors – including a list of questions to ask your advisor candidate before enlisting their services.
John Drachman is a contributing writer to MyPerfectFinancialAdvisor, the premier matchmaker between investors and advisors. John is an IABC award-winning writer, who applies his 30 years of financial marketing experience toward advancing the dialog between investors and investment professionals.