Expertise, Energy and Time – they are three elements you need if you are going to successfully do your own direct investing.
We’re not born with expertise, so if you are interested enough to dedicate time to directly investing your own money, then first you need to invest your time and energy in acquiring the expertise.
As you set out to acquire the expertise required to be successful there are two important considerations:
- What’s the standard of expertise you need to aim for?
- How will you assess if your effort is worthwhile?
Compare to your alternatives
To answer both questions compare yourself to your alternative choice of outsourcing to professionals such as investment fund managers or stockbrokers.
Are you prepared to become as qualified, experienced, and thorough as you would expect of someone else who is managing your money?
Will you thoroughly measure your performance and compare that to your professional alternatives such as low-cost passive index funds and active fund managers?
Start with an ‘entertainment’ portfolio
If you answer “no” to the above but still want to directly own some investments because you find it fun, that is totally okay and legitimate.
Just think of the money you directly invest as part of your entertainment budget. Call it your ‘Entertainment Portfolio’, and just like with other entertainment expect to only get back memories. Don’t think of it as part of your wealth creation strategy.
Add an ‘education’ portfolio
When you do want to acquire the expertise start small with an education portfolio where you put into action what you are learning.
Just like with course and books, be prepared to lose all of this money in pursuit of gaining experience and insight.
While you’re in the learning phase keep your wealth creation separate and outsourced to professionals.
Take over your ‘wealth creation’ portfolio
Once your benchmarking shows that you’re performing well enough, begin adding some DIY to your wealth creation as a satellite to your core wealth creation with the professionals.
Don’t suddenly switch all of your investments under your own management. Slowly increase the proportion that you manage directly yourself.
Learn more about getting started
If you want to go beyond an entertainment portfolio and be serious about learning to DIY invest, listen to this episode to understand what to aim for and where to start.