The Risks and Rewards of Self-Directed Investing

Managing your own investment portfolio can be liberating or downright terrifying, depending on how prepared you are. While many investors are content with mutual funds or professionally managed portfolios, others want more control, flexibility, and direct involvement.

Self-directing investing offers all that and more. But before you jump into it, it’s important to understand both the risks and the rewards that come with managing your own investments.

What Is Self-Directed Investing?

Self-directed investing means you, the investor, are responsible for making your own investment decisions. You choose the assets, create your strategy, and manage your portfolio with little to no involvement from financial advisors or portfolio managers.

This process usually involves using online brokerage platforms like SoFi or specialized self-directed accounts to access investment assets, including:

• Stocks and ETFs
• Bonds
• Mutual funds
• Real estate

And much more.

In short, self directed investing gives you complete control and responsibility over where your money goes.

The Rewards of Self-Directed Investing

Self-directed investors get to enjoy:

Control and Flexibility

Whether you want to invest in a startup or build a dividend portfolio, you can go for anything you want. Unlike managed funds or robo-advisors, you’re not limited by someone else’s strategy or risk appetite.

Lower Fees

By managing your own portfolio, you can avoid the fees associated with actively managed funds or financial advisors. This means that you can have more of your money to invest and compound.

Access to Diverse Assets

Some self-directed investment accounts give you access to more account types and assets. This can diversify your portfolio beyond just stocks and bonds.

Educational Growth

If you’re the type who loves learning, self-directed investing can be a rewarding way to sharpen your financial literacy, deepen your understanding of the markets, and build long-term wealth.

The Risks of Self-Directed Investing

As all things do, self-directed investing also comes with its share of risks. Some of them include:

Lack of Professional Guidance

You’re on your own. If you make a poor investment decision or react emotionally to market swings, there’s no advisor to stop you. And if you don’t fully understand a particular asset, you could be losing money instead of earning it.

Increased Complexity

Managing your own investment means you need to spend more time researching, tracking performance, rebalancing and refining, and staying up to date on market trends. If you’re not familiar with trends or don’t have a strategy, you could make costly mistakes.

Scams and Fraud

Self-directed investing platforms are often less regulated than traditional ones. Especially when investing in private assets or real estate, there’s a greater risk of falling prey to scams.

Is Self-Directed Investing Right for You?

It depends on your goals, experience, and risk tolerance. This type of investing may be right for you if you:

• Enjoy researching and managing investments
• Have a solid understanding of asset classes and market trends
• Want access to niche or alternative investments
• Are confident in your ability to manage risk without an advisor

But if you’re new to investing or prefer a hands-off approach, it may not be the best fit. As long as you’re willing to explore and learn, there’s no reason not to try self-directed investing.