Five Smart Moves for DIY Investors, From a Financial Planner

A do-it-yourself investor looks over financial paperwork at his desk at home. — (Image credit: Getty Images)

Managing investments yourself can offer flexibility and control, but it does take some discipline and a solid financial plan.

The DIY Investing Hub notes that many investors underperform not because of the market, but because of poor decisions and a lack of strategy.

This article provides five straightforward tips for DIY investors seeking to grow their wealth, stay on track and avoid common pitfalls.

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The Kiplinger Building Wealth program handpicks financial advisers and business owners from around the world to share retirement, estate planning and tax strategies to preserve and grow your wealth. These experts, who never pay for inclusion on the site, include professional wealth managers, fiduciary financial planners, CPAs and lawyers. Most of them have certifications including CFP®, ChFC®, IAR, AIF®, CDFA® and more, and their stellar records can be checked through the SEC or FINRA.

1. Establish clear financial goals and risk tolerance

Before building your portfolio, it's crucial to determine your financial goals and assess the level of risk you can handle. Are you saving for an emergency, a house or retirement? Break down your goals into short-term, medium-term and long-term objectives.

Try using SMART goals by making them specific, measurable, achievable, relevant and time-bound. Once you've got those set, think about your risk tolerance.

Know how much the market ups and downs make you sweat — this will help you decide where to put your money.

As a general construct, the longer your investment timeline, the greater your ability to withstand periodic bouts of market volatility.

2. Craft a diversified investment portfolio

A well-diversified portfolio is designed to be one of the best defenses against market volatility. Avoid concentrating your investments in a single area. Spread them across stocks and bonds, and even consider alternatives, such as real estate or commodities.

One way to diversify is through asset classes. For example, within stocks, consider diversifying across market capitalization (large-cap, mid-cap, small-cap) and investment styles (growth, value).

It's also essential to remember geographic diversification and to include international stocks and bonds. While diversification doesn't guarantee you'll make money, it can help you ride out the ups and downs.

3. Embrace a long-term investment mindset

One of the most common mistakes DIY investors make is trying to time the market. Instead of jumping in and out of investments based on market volatility, consider a long-term approach.

I suggest implementing a buy-and-hold strategy; holding on to your investments can lead to better long-term growth and saves on transaction fees.

If you're investing regularly, consider dollar-cost averaging. This strategy involves investing a fixed amount every month in the market, allowing investors to buy more shares when the price dips.

4. Manage costs and taxes effectively

High fees can eat into long-term returns. If you opt for low-cost investment options, such as index funds and ETFs, you can help minimize these expenses and potentially increase your long-term returns.

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Investing options, such as a Traditional or Roth IRA or Traditional or Roth 401(k), are considered tax-advantaged and can help you maximize your investment growth while minimizing your tax liability.

In fact, according to Vanguard, these accounts allow you to either defer or avoid certain taxes, which can make a big difference over time.

If you're investing in taxable accounts, you can sell some investments at a loss to offset gains, which can help lower your tax bill.

5. Regularly review and adjust your strategy

Review your portfolio at least once a year to ensure it remains up to date. Check if your goals or risk tolerance have changed. If your asset allocation looks off, you may need to rebalance your portfolio.

Stay updated and be ready to tweak your plan as your situation or the market shifts.

DIY investing isn't about making perfect moves — it's about having a clear plan, staying disciplined and making thoughtful adjustments as you go.

By following these guidelines, DIY investors will be equipped with the knowledge and tools to navigate the wealth management landscape with confidence.

While these tips can help you build a strong foundation, managing your own investments doesn't mean you have to go at it alone.

Working with a CERTIFIED FINANCIAL PLANNER™ professional is a great way to be able to consult with a trained practitioner in each of the above areas and receive personalized, professional guidance.

Disclaimer

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

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Vincent Birardi is based in Halbert Hargrove’s Long Beach headquarters and brings more than 25 years of experience in financial services to his wealth advisory relationships with clients — along with a passion for identifying solutions that will enable them to fulfill their life goals. What he values most about his role is helping to bring clarity and peace of mind to clients and their families. Prior to joining the firm in 2018, Vincent held management roles with PIMCO and Morgan Stanley. He was awarded the ACCREDITED INVESTMENT FIDUCIARY™ designation by the University of Pittsburgh-affiliated Center for Fiduciary Studies and is a CERTIFIED FINANCIAL PLANNER™ professional.