126 – 10 Flaws Of DIY Investing

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10 Flaws Of DIY Investing

If you don’t have an investment strategy, then you are not a DIY investor.

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Bob and Shawn delve into the investing realm to discuss why investing isn’t something that you should just DIY. This episode is super important for anyone who has ever thought about investing on their own. Investing correctly involves time, tools, and expertise. You really might be surprised at the flaws of DIY investing, and why it is not something that we recommend you do solo!

Christian Financial Advisors has the tools to help you with an investment portfolio, and these tools come at a price of both money and time. Think of how many things in your life you normally wouldn’t attempt to do-it-yourself: fixing household appliances, car maintenance, roofing, etc. You call a professional! These same conditions also apply to investing. Find out why you should stick to a professional, fiduciary based financial advisor when it comes to your investment portfolio.

Mentioned In This Episode

Bible Verses In This Episode

Want to ask a question about your specific situation? Schedule a complimentary 15 minute phone call.

[INTRODUCTION]

Welcome to “Christian Financial Perspectives”, where you’re invited to gain insight, wisdom and knowledge about how Christians integrate their faith, life and finances with a Biblical Worldview. Here’s your host Christian Investment Advisor, Financial Planner, and Coach, Bob Barber.

[EPISODE]

Shawn:
Welcome to another episode of Christian Financial Perspectives. We’re so glad you joined us today. Whether you’re watching this video online or you’re listening in on one of the many podcast directories, we’re so glad you’ve decided to join us. And Bob, what do we have for today?

Bob:
Well, today, Shawn, we have do it yourself investing and the “10 Flaws Of Do It Yourself Investing”. I speak with people every day. They’ve been trying to do it themselves, but they’ve not been very successful at it. And so I think it’s important to, in today’s climate, especially the way that you hear the advertising on YouTube or regular TV or social media, that you don’t need anybody. You can just do it all yourself.

Shawn:
All just DIY.

Bob:
Yes, it is. So I think there’s some flaws behind that, and we’re gonna talk about the 10 flaws. And I think once you hear these flaws, you will have your eyes opened because no one talks about them. They really don’t.

Shawn:
Well, let’s go ahead and start with a couple scriptures. First, I’m gonna be reading Proverbs 15:22, “Plans Fail for Lack of counsel, but with many advisors, they succeed.” It’s one of our favorite verses here.

Bob:
It is. We quoted it a lot around here, but I think it’s a very good one, especially for today about doing things yourself and all alone.

Shawn:
And that doesn’t apply just to investing either. That scripture is great for really anything in life that you should always seek wise counsel, whether it’s investments, legal, tax, something not related to finance at all. But yeah, seek wise counsel. And then the second, second scripture is Ecclesiastes 4:10 which states, “If either of them falls down, one can help the other up, but pity anyone who falls and has no one to help them up.”

Bob:
And I like a little bit of the rest of that scripture that talks about two or better than one. I do believe that, and it’s interesting. I don’t believe one plus one equals two. I believe one plus one equals three in this way of talking. I mean, I know math is one and one is two. But when you get two minds together, or even three minds together, it’s like having five minds because you’re bouncing off each other.

Shawn:
The synergy of having multiple people working together is greater than the the parts.

Bob:
So, let’s get into the the first flaw of the, of the Tim flaws is a lack of long term, everyday experience.

Shawn:
That’s a good one.

Bob:
Experience really comes with investing and financial planning. And it takes a long time. Shawn, I’ve been doing this for 38 years and I’m still learning. After all that time.

Shawn:
Believe it or not, after eight years, I’m still learning too…But yeah, that’s definitely a good one. Just having that experience of doing it as a career, as a job. Is, I mean, like you said, there’s still so much to learn, but you also learn a lot doing that all the time.

Bob:
Over and over. The repetition

Shawn:
For most people, I mean, the average investor, that’s DIY, it’s not something that you’re doing every day. It’s something that as an investor, you’re maybe once a day or once a week. I mean, it depends on the person how often they look look, but…

Bob:
I just can’t stand these commercials where it shows somebody doing trades while they’re at their workplace or during a lunch break. I mean, come on, this is God’s money. It belongs to him, and he’s looking at us to be good managers. How can you be a good manager playing it like that?

Shawn:
Yeah. Well, I think the biggest distinction with that is for those of you, who hopefully we’ve got your interest now on DIY investing, but there’s a big difference between investing and trading. You see these commercials that talk about showing how easy it is. Oh, just do it on your lunch break. Absolutely. You can trade, you can make trades very quickly and many times within a couple minutes, but that’s not the same as investing. That’s not the same as you are focusing on investing for the long term or for retirement. That’s trading. So the investing part is what should you be trading? When should you be making those trades? Into what? Like, that’s the hard part of investing, not the trading part. That’s just technology.

Bob:
And so when they talk about investors today, or investors this hour, they’re not talking about investors. They’re talking about traders. Or like I always say it, it’s T-R-A-I-T-O-R .Okay. The second flaw of doing-it-yourself investing is actually, most people don’t realize this, is lower long term returns. The average returns are actually much lower. Now, I want to have Garrett put up a chart right here that you can see right here. And you will notice that over every time period, 12 months, 3 years, 5 years, 10 years, 20 years, the returns are lower for the everyday–

Shawn:
The average investor.

Bob:
The average investor.

Shawn:
Yeah. And that’s compared with just a simple buying hold strategy for the S and P 500, that the average investor underperforms a simple buying whole strategy consistently. So when you look at that and say, Well, I don’t wanna hire an advisor because I don’t wanna pay a fee. Okay, Well, at the very least, then don’t try to do it yourself. You should do a buying hold strategy.

Bob:
Like I’ve said, Shawn, many times you’ll hear me say this today, we should have had a degree not just in finance, but in psychology as well.

Shawn:
Amen.

Bob:
Which leads to the third flaw of doing-it-yourself. And that is emotional decision making. Making those decisions on emotions. And if you’ve listened to the podcast very long, you know that I’m always saying emotions and finance mixed together like oil and water. You just shouldn’t do it.

Shawn:
So they don’t mix.

Bob:
They do not mix.

Shawn:
They don’t mix. And we’re gonna put a chart on screen that shows the the emotional investor chart or like the market.

Bob:
That’s a good idea to

Shawn:
Put that up there. Cause I think it’s good. You look at this chart and you see as people are getting more and more excited and you’re getting almost buy euphoria, and everybody wants to buy bye, buy, buy. Well, that’s typically the point where it’s increasing the chances that markets are probably about to have a pullback of some kind. Some sort of correction. And then again, average investor – doesn’t necessarily mean everybody – but the average investor, when you get towards the bottom of the emotional cycle where everybody is panicking, there’s the depression and just get me out. That’s usually a good time, especially for institutional investors or professional investors. They think, Okay, if the investor sentiment is showing nobody wants it, probably a good time for me to buy in. And so it just kind of goes to show that for the average investor, that emotional aspect of making those decisions, it hurts you in the long run because you end up, most of the time you buy high and you sell low, which is the opposite of what —

Bob:
You should be doing.

Shawn:
Of what you’re supposed to be doing. Or you buy low and you sell high.

Bob:
And you know, I love that chart.

Shawn:
You do.

Bob:
I mean, I’ve got that chart on my desk under the glass part where everyone can see it when they come into my office.

Shawn:
It reminds me of that phrase you say many, many times where things have been going really well, you want to take the strategy of go ahead and pull some of that profit off. Go ahead and pull some of that growth that you’ve had off the table. You move it somewhere else.

Bob:
It goes against human nature.

Shawn:
It does, but the pigs get fat and the hogs get slaughtered.

Bob:
So where’d you get that saying from?

Shawn:
You.

Bob:
That’s a country boy saying. The pigs get fat and the hogs get slaughtered..

Shawn:
But my dad owns a farm. Does that count?

Bob:
Yes, he does. He owns a lot of farms. So, yes.

Shawn:
All right. So number four. Okay, let’s go into that one. No personal team to help with major financial decisions. So this is the part, Bob, that really gets into point number two, right? That was talking about the returns and the performance. That’s really one part of the investment process. And ultimately the point. I mean, how many people do we work with that come into the office and all it is is they just wanna get a certain return. That’s never actually what the focus is.

Bob:
No, it’s not.

Shawn:
And even if someone is concerned about returns, what is it they’re really asking? Am I on track to actually be able to retire or not? I mean, that’s usually what people are asking. And whether that’s they have certain amount of money that they wanna fund charities or it’s money to take care of themselves – no matter what it is. But ultimately, it comes down to I’m trying to make these major financial decisions, whether it’s retirement or between now and retirement, and when you’re doing-it-yourself, who are you gonna talk to about that?

Bob:
I’m talking about major financial decisions that I deal with every day from clients that give me a call, too. Should I sell this home? Should I buy this home? What about buying this car? What about taking this big vacation?

Shawn:
And how is that gonna affect your portfolio?

Bob:
Yeah. And when you’re doing-it-yourself, who are you bouncing that off of? Maybe your spouse, but your spouse doesn’t have the experience in that. I’m not saying that a do-it-yourself investor, if they’re 70 years old, maybe they could, but usually it’s interesting. As they get older, they realize they need help. It’s the younger that doesn’t realize that.

Shawn:
Well, back to number three, Bob, not having a team to talk to – that emotional aspect of it can also tie into you’re trying to make this decision of, should you go on that cruise? Should you buy the new car? You’re emotionally invested in that decision. When you’re talking to a third party, when you’re asking a trusted advisor, they’re not emotionally invested in whether or not you should go on the cruise or the car because it’s not gonna affect them. What an advisor, in that case, is doing is trying to help you determine from a mathematical perspective and for your long term goals, is this going to hurt it or is it something that you can manage? That’s where the decision is being made. So , yeah. Your spouse usually is a great person. You should always talk to your spouse. But when you and your spouse are making a decision that directly affects you both, it’s very difficult to actually remove yourself emotionally from that decision.

Bob:
That’s a good point. That’s a very good point. And we’re gonna get into talking on one of the lower points about making those decisions how we use mathematical tools to do that.

Shawn:
Why don’t you get number five.

Bob:
Okay. Number five is lack of an investment strategy. Boy, I see this one a lot. Shawn, I ask all the time, I’m investing myself. Right? And I say, What’s your investment strategy? And I get this deer in the headlights look. Okay.

Shawn:
Wait. Strategy?

Bob:
Yep. Investment strategy. What do you mean? Do you have a written investment strategy as to what you’re gonna do during this market or what you’re gonna do during a down market or an upmarket. What’s your investment strategy? Now, on our website for Christianfinancialadvisors.com, you can look under investments and it will tell you our investment strategy. We have seven points, and there’s a lot of strategies under all seven of those points. We abide by those seven points.

Shawn:
That’s right.

Bob:
And we stick by those so that we don’t get off track.

Shawn:
That’s right. And it covers it covers our mentality of not allowing emotions to dictate decisions, not allowing whatever happens to be said in the news today for entertainment purposes, not allowing doomsayers. Those kinds of things – we don’t allow that to affect it. But then it also covers both our faith based, biblically responsible investing. It covers our strategy for that. And how are we actually doing that? It also covers financial fundamentals and the stuff that even someone who isn’t a faith-based advisor should be doing, if they’re an advisor.

Bob:
Looking at the financials of the company. Are they profitable or not? What’s their price to earning ratio? What are the analysts saying about them?

Shawn:
Exactly. Okay. So we go through all those things, like Bob said, you can see it on our website. And if you don’t have an investment strategy, then you are not a DIY investor. You’re a DIY trader. Because that’s one of the big differences. If you have a strategy or not determines investment versus trades.

Bob:
I gotta say that I’ve never met a DIY investor, the head of investment strategy, not one time.

Shawn:
Lots of traders, lots of traders.

Bob:
Not one time. Isn’t that amazing? Okay. Number six. Shawn, I’m gonna have you do that. And now I really wanna comment on this one. Cause you know I can.

Shawn:
Well, I’ll set it up and you can swing it.

Bob:
Okay. All right.

Shawn:
So number six, the time it takes to manage it correctly, you need to be laser focused on financial global events 24/7, 365, and love doing it.

Bob:
Okay Shawn, so make a comment about me on this one.

Shawn:
You fit that very much.

Bob:
I do, don’t I?

Shawn:
To a T.

Bob:
In a way it can be sad because I don’t have any idea of what else is going on.

Shawn:
Don’t ask him about any particular movies or actors, unless it’s a show that was filmed and displayed in black and white or TV shows in black and white, Bob’s not gonna know what the movie is.

Bob:
Because I’m very focused on the global events, and yes, I love doing it. I know I’m a little bit weird. I’m kind of strange, but I’m literally focused on financial events every day, and I love doing it. And if you’re gonna be managing money yourself, you need to love doing this. I mean, every waking hour that you can think of, you need to be focused on it because things are changing financially, constantly in the world and how to respond to that and knowing that your response should not just be instant, but how does this fit in the long term? How does this fit with experience?

Shawn:
I mean, speaking of that, I can speak personally that even though I’ve only been an advisor eight years and I have been working very hard to learn everything that I can and to more or less train myself to be doing this 24/7/365, I hope in another 10 or 15 years that I could be a little closer to where Bob’s at now. I mean, there are times where we talk and thinking this is just like habit, second nature, almost like instinct.

Bob:
It becomes muscle memory.

Shawn:
Yeah. Thank you. That’s what I was trying to think of. It’s almost like a muscle memory because you’ve been doing it so long that it’s just part of every day. It’s just part of how you operate.

Bob:
It doesn’t shake me. I’ve seen it.

Shawn:
But it takes time to do that. And it takes consistency in doing that before you can get to that point.

Bob:
I gotta admit, it does, and I’m still learning. Like I said, I’ve been doing this for 38 years and I’m still learning a lot. Okay. So the second, I mean the seventh flaw, the seventh flaw of DIY investing is lack of professional planning tools, and I’m talking things like we use – Advisys, we use eMoney. We use —

Shawn:
Y-Charts.

Bob:
YCharts.

Shawn:
Riskalyze.

Bob:
All these different tools, and just think of it this way. Okay, Shawn. I was thinking about this when I was putting this together. A guy that trims out a home, Okay? He’s got all his tools. He’s got his nail gun, the PROPER nail gun. Not just any nail gun, cause you use a different nail gun for framing than you do for trimming. He’s got the saw, and he understands how to work all those tools. These tools, as you know, take a lot of time.

Shawn:
Yeah. They’re expensive.

Bob:
Very.

Shawn:
They take a while to get proficient at them. And you have to keep using them to make sure you retain those skills. And so it’s, again, it kind of goes back to that 24/7/365. There are these tools that we have to use as tools of the trade. Just like you were talking about with the trim carpenter, whatever. And the other part of it is that training and that practice in knowing how to use them properly. I could go to Lowes or Home Depot or McCoy’s down the road, and I could go buy a bunch of these tools and spend a whole lot of money, but that doesn’t all of a sudden make me a skilled trimmer or a carpenter. But that’s kind of the other aspect of this.

Bob:
Yeah. Well, you’ve watched me on some of these and it’s like muscle memory. In eMoney how I’m just flipping around the charts and putting the different scenarios in. And I don’t even know how I do it. I mean, I’ve been doing it for so long, it just is so fast. And like, “How do you handle this?” It’s just part of it. Been doing it for so long. All right. What’s the eighth flaw?

Shawn:
Eighth one is proper asset allocation model construction and how to utilize different models for different goals. Because over time, things change.

Bob:
I’ve never seen a DIY investor. They don’t even know how to put together an asset allocation model. Maybe they know how to invest in one already. But how to put together the proper asset allocation and then to realize you need the different models for different goals that you have in life. They’ve never thought of that.

Shawn:
That’s right.

Bob:
That’s a major flaw of not doing that.

Shawn:
Why is that? It’s because usually DIY traders don’t have an investment philosophy. They don’t have an investment strategy. That’s the first part. Once you have the strategy, the next part is the ongoing implementation of that. So when it comes to that allocation, that model construction and what are you going into, what percentage are you going into it and when to make adjustments and changes as the economy changes. As you know, options change. Politics change, both local and abroad. I mean, there’s all these factors that go into it. You have your strategy. You have your investment philosophy, but when and what do you change it to throughout the year?

Bob:
And these models are breathing and living. They’re like living, breathing models. And you don’t just go all or nothing. You massage those models. And that takes us into the ninth flaw that I see.

Shawn:
Which is understanding how risk and reward work together and what to expect in normal fluctuations during different investment cycles.

Bob:
We’re in a down cycle this year. We’ve been in one and the volatility–

Shawn:
But is it way out of the norm? Is it in the norm? Is it not as bad? I mean, those are the questions where understanding what those different investment cycles look like. That’s the importance of it.

Bob:
That takes time, Shawn.

Shawn:
Exactly.

Bob:
And that takes a tremendous amount of time. I’ve been through ’87 and you know, the huge downturn in 1987, that’s how far back I go. I’ve been through ’90. I’ve been through the ’99, 2000, 2001 internet bubble. I’ve been through 2008. I’ve been through COVID of course, recently. And now this. I’m not surprised by any of them. And you will see so many things, identical things, happening during these markets.

Shawn:
Well put a chart on screen. There’s that really interesting chart that we saw. I think it was from Putnam Investments, but it actually shows over the last 73 years, I believe it’s updated through the end of 2021, but it shows the duration and the percentage change in bull and bear markets from the last 73 years. It is a really interesting chart to see that it’s not IF we have a bear market, it’s WHEN we have a bear market and what to expect, what’s normal.

Bob:
So let’s get to our last flaw.

Shawn:
Which is lack of understanding and applying all the different tax strategies.

Bob:
There’s a lot of tax strategies that can be applied during investing. We used one just recently. The markets have been down. There’s a lot of unrealized losses in the market. So we reached in, and we took those losses. But the way to do that is you have to take your losses and immediately get back into the markets. Today is an example. I mean, I know this program’s not gonna come out for probably five or six weeks, but today is an example and yesterday too about how using this kind of strategy and the importance of you’ve gotta go out of one door and right back into the next door. And the reason I say that is cause the market was down, as you know, last week 3% or 4%. And then the last two days, if you add the two, it’s up 5%. So, you can’t be out of the market. But we took those losses for 31 days, and we have to go by the wash rules. We can’t go back into that same portfolio. It’s complicated, and I’m not gonna go through all of it here, but that’s using the different tax strategies. And nobody likes paying taxes, Shawn. I’ve never met anybody. No matter how little they pay, they pay.

Shawn:
Jesus said, “Give to Caesar what is Caesar’s.”

Bob:
Yes, he did.

Shawn:
But don’t give Caesar 1 cent more than you have to. Give exactly what you owe and no more.

Bob:
So that does it today for our “10 Flaws of DIY or Do-It-Yourself Investing”. Okay. And after hearing this, you may think I think I want to hire a fiduciary based advisor. Don’t hire a commission based advisor. Whatever you do, hire a fiduciary based advisor where you’re paying them. They’re not getting paid by what they put you in. So be very careful of that. And we would be glad to talk to you about coming alongside you and becoming a partner with you. That’s the way it basically works. We’re not getting paid by what we put you in. There’s no commissions here at all.

Shawn:
That’s right. We get paid a flat percentage per year. And whether we make one trade or we make a hundred trades, and it doesn’t matter what particular investments we choose, it doesn’t change what we are compensated. That’s ultimately what a fiduciary advisor is. They don’t have a conflict of interest with, “Oh, I wanna recommend this product to you cause I get paid more.” What they recommend shouldn’t change what they get paid.

Bob:
We do well when you do well and when you don’t do well, we don’t do well. So we have a vested interest in how all of our clients do. So here’s our phone number to give us a call. You can call us or you can text us during business hours. It’s (830) 609-6986. And we serve nationwide customers nationwide. And you can go to our website, you can spell out ChristianFinancialAdvisors.com or you can abbreviate and just go ChristianFA.com and that’ll get you to our website. Well, that’s gonna do it for today.

Shawn:
That’s all. Thank you so much for joining us. God bless and until next time.

[CONCLUSION]

That’s all for now.

We invite you to listen to all of our past episodes covering many financial topics from a Christian Perspective. To make sure you don’t miss any of Bob’s upcoming episodes you can subscribe to Christian Financial Perspectives on iTunes, Google Play Music, Spotify, or Stitcher. To learn more about integrating your faith with your finances, visit ciswealth.com or call 830-609-6986.

[DISCLOSURES]

Investment advisory services offered through Christian Investment Advisors Inc dba Christian Financial Advisors, a registered investment advisor registered with the SEC. Registration as an investment advisor does not imply a certain level of skill or training. Comments from today’s show are for informational purposes only and not to be considered investment advice or recommendations to buy or sell any company that may have been mentioned or discussed. The opinions expressed are solely those of the hosts, Bob Barber and Shawn Peters, and their guests. Bob and Shawn do not provide tax advice and encourage you to seek guidance from a tax professional. While Christian Financial Advisors believes the information to be accurate and reliable, we do not claim or have responsibility for its completeness, accuracy, or reliability.