Readers of investing blogs tend to be those who enjoy spending time thinking and talking about investing. However, most people would talk about foot fungus than investing. These people see investing as a necessary evil and want to handle it in the easiest possible way.
It seems like a no-brainer that the easiest way to invest is to hand your money over to a financial advisor and just do whatever he or she says. Even if we ignore the high cost of paying the typical advisor, I’m not convinced that the answer is this obvious.
The term “DIY investor” conjures up images of a group of people boring their spouses at a party with endless talk of whether Apple or Google stock will go up or down. But it doesn’t have to be this way. An investment portfolio can be just about as simple as a bank account.
For example, an investor could just divide investment funds into thirds: one-third for a Canadian stock index, another for a U.S. stock index, and the last for a bond index. New money goes into whichever is lowest, and withdrawals come from whichever is highest. This may not be optimal, but it is dead simple, requires no paying attention to the financial media, and is likely to outperform investments recommended by the typical advisor.
I contend that the strategy I described is actually easier than having a financial advisor invest your money for you. I’d rather just do what I want to do with my money than have to talk to an advisor for all transactions. The main barrier for the “uninterested investor” is to gain enough knowledge to be able to ignore other input and just stick to a simple plan through thick and thin.
There is room for financial experts in people’s lives, but keep in mind that the typical person whom we call a financial advisor is not an expert. They just tell you which mutual funds to buy and do the buying for you. If you need complex legal, tax, or insurance advice, you need to find an expert. The same would be true whether you buy your own ETFs or let someone buy mutual funds for you.
With a modest amount of effort to gain some investing knowledge initially, investors can make their investing lives even easier with a simple DIY approach than they can by just handing their money over to someone else.