Know the pitfalls of DIY investing

ARE you a do-it-yourself investor or toying with becoming one? You may be relatively young, with a promising career path ahead of you, but have not, until now, seriously considered investing a portion of your monthly salary cheque with a financial goal in mind.

- MARTIN HESSE

Or you may have received a large sum of money, perhaps as an inheritance, that you are looking to invest and are considering doing it yourself.

DIY investing is incredibly easy and becoming easier by the day, thanks to the proliferation of online share trading and investment platforms. The banks have their own share platforms that you can link to your bank account.

For unit trust funds, most providers make it relatively easy for retail investors to invest in their products directly via an online application.

What's not to like? Online convenience. No middle men. Lower costs if you’re investing in index-tracking funds. Abundant choice...

The first thing you should consider is your knowledge of the subject. Do you know that you can buy an actual share in a company or a derivative of that share, known as a CFD (contract for difference), and that the latter is little more than taking a bet on the share price? Do you know the difference between a unit trust fund and an exchange-traded fund, or what dividends are and how they can boost your returns? Do you know what “leverage” means and that it can result in you losing more money than you invested?

A lack of knowledge can be rectified online. Just as there are hundreds of ways to trade or invest, so too there are innumerable videos, courses, articles, discussion groups, “finfluencers”, and other means of learning the ropes. (Be careful, though: how do you know that your favourite “finfluencer” really knows what he is talking about or genuinely has your interests at heart?)