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Rise of the retail investor

DIY investing: From short-term investing to a long-term financial plan

Last updated: July 12, 2022 |

Article published: February 25, 2022

One of the most surprising phenomena that came out of the Covid-19 bear market in 2020 was the rise of the retail investor. Suddenly and unexpectedly, a whole new generation of DIY investors opened up brokerage accounts and began investing in the stock market.

In fact, a study by Schwab shows that as much as 15% of current retail investors – those considered nonprofessional investors – started DIY investing for the first time in 2020.

As you would expect, the media jumped all over this trend, particularly those stories where a novice investor was able to turn their account into a small fortune. And why not? Those stories are super fun to read. Everyone enjoys a real-world David and Goliath story.

But, in reality, those stories are really the outliers.

DIY investor realities

As we moved into 2021, many of the formerly high-flying meme stocks that were the favorites of DIY investors crashed back down to Earth, in some cases losing as much as 70, 80, even 90% in value.

In addition, message forums like Reddit’s WallStreetBets, where the rise of the retail investor was most evident and vocal, have seen their traffic drop precipitously since the halcyon days of early 2021.

It seems as if DIY investors are suffering from a stock market hangover.

But the news isn’t all bad. Many of those first-time investors who were lured into the market by the possibility of getting rich quick have now changed their approach.

According to a survey by U.S. News & World Report, 81% of investors who had purchased a meme stock in 2020 went on to build a more diversified portfolio and take a longer-term outlook.

With this newly minted outlook, DIY investors can benefit by following some time-tested advice:

  • Reject tactics such as market timing, sector rotation, trend analysis and any other fads.
  • Be very careful about being overly concentrated in one stock or sector.
  • Don’t time the market. No one has ever demonstrated an ability to buy and sell at the right times consistently over any meaningful length of time, including professionals.
  • Remain as diversified as possible, fully invested in the major asset classes and market sectors.
  • Be prepared to put the time in.
  • Do your research. If this is your passion, that’s great. But make sure to vet the resources where you are getting your information.
  • Beware of hidden agendas or connections. There is a lot of free education out there, but undisclosed information may create conflicts or bias. Your research may need to extend beyond just reading an article or watching a video and taking action.

How to make a financial plan

It’s also important to understand the difference between having a long-term investment outlook and having a long-term financial plan.

A long-term financial plan views your investments as just one component of an overall strategy designed to elevate your financial potential and help maximize future opportunities.

This type of integrated wealth management includes financial planning, retirement planning, tax strategies and estate and insurance planning, all working together to help you meet your goals. Each area is a specialty unto itself and it takes years of education, and more importantly, real-world experience, to understand how each relates to the other within the framework of a comprehensive financial plan.

In other words, DIY investing videos on YouTube can only take you so far.

If you are a retail investor who is looking to take your financial future to the next level, get in touch with one of our financial advisors.

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