This is the third part of my 10 part series on the tenets of my investment philosophy. I believe that investing without a game plan is equivalent to a baseball player swinging with his eyes closed. Sometimes contact will be made, but not having a game plan makes the at bat that much harder. I’ve sent up a Tenets of Investing page where you can click to check out all 10 of my tenets. And just to screw with you guys, I’m going to write about them in a random order.
With respect to Preet and Mike, who are a couple of smart guys, I think most investors can get themselves to the point where they don’t need the advice of a professional advisor. This didn’t used to be the case however. As recently as 15 years ago, the DIY investor was at a serious disadvantage compared to a professional. Thanks to the rise of online trading and all sorts of websites with great information, any investor willing to put in the time can research just like a professional.
You have two choices as an investor. You can go the simple route, buying exchange traded funds that track broad indices like the S&P 500 or the Russel 2000. You’ll never outperform the market that way, but you’ll never do much worse than the market either. Or you can pick individual stocks, whether you focus on growth, dividends or deep value, if you become a skilled investor I believe you are capable of beating the market.
I don’t have to spend a lot of time telling you guys about the virtues of investing online. It’s cheap. It’s fast. You can do it whenever you want and you have total control over the trade. The research is just as good as the full service guys provide. I don’t understand why anyone uses a full service broker, but that’s just me.
You’ll have questions as a DIY investor that won’t be easily answered. What about taxes? Insurance? The solution to those questions is quite simple. Find the corresponding expert and pay them for their expertise. Don’t use a financial advisor who knows a little something about taxes or insurance. Alternatively, you can just try googling the answer. One of the many great personal finance blogs out there probably has the answer.